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December 18, 2010

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ok if you can wait to buy the truck. At today's low interest rates it would take a long time for many people to build up to the $40,000. And you pay taxes on the interest earnings. And, with inflation the truck will cost more than $40,000 by then.
I still go with total income versus total expenditures. If expenditures (including truck loan) are 85% or less than take home pay you are probably in pretty good shape. Put the bulk of the 15% in tax deferred investments. It might mean you can't afford the truck but so be it. Then part of the 85% is saving to the point where after down payment you can afford it.
It's that simple.

Why not just buy a 4 year old $20,000 truck in the first place? It costs people a ton of money when they start to rationalize new vs depreciated.

All you are doing is paying for it with cash and at the end of the day you are still out the same 20k. It's only a psychological ploy to then replenish the 40k fund by saying it was your own bank over time. But it is no different than what most people would do anyway. As far as paying yourself an interest on top of it, most people would probably be thinking of investing it versus sitting it a bank account at minimal return. If anything now there is an extra 28K accrued over 5 years of opportunity cost (sitting in a bank account vs investing). Or in other words this extra 28K is now sitting in cash which may not be in alignment with whatever asset allocation you have decided.

THIS ARTICLE IS THE WORK OF A CHARLATAN. PROCEED WITH EXTREME CAUTION.

This is so disappointing to find this article here. To be blunt, this whole article and concept is 100% misleading crap.

This is like a late night infomercial or some other "scheme" where they entice you with something that sounds too good to be true but don't give you any details. And yes I use the word SCHEME cause that's what this is.

Notice how the article never tells you how you are supposed to bank on yourself. It never tells you what "your own personal banking system" is. Let me fill you in. It is not saving money up in a bank account for yourself.

Here is what it is:

It's a big fat whole life or variable life insurance policy. You pay huge premiums into this system for years. After paying in for many years it will finally have built up some cash value, some dividend value and some excess death benefit. This value can be borrowed against and paid back (to yourself) with interest. You can never actually get at this money until you die other than borrowing it and paying it back with interest. You could of course cash in the policy but it will be cashed in at far less than the death benefit and almost certainly far less than you have paid in with premiums over the years.

It's also worth noting that in the first few years this "personal banking system" will have almost zero value in it and zero dollars you can borrow out of it. And in the first 10, 15, 20 years it will always have less dollars available to borrow than you actually paid in with premiums. If you just put the money in the bank it would have far more available to you than it would in this "personal banking system"

This "personal banking system" has a very high overhead cost to it, namely the cost of the underlying insurance (which will have to be quite substantial and the cost of the insurance commission and the insurance company profit). All of that will come out of your "personal banking system"

In addition his numbers here are a total lie. You do not come out paying nothing for the truck and end up money ahead with this system.

In order to get to the point where you can borrow 40K out of your personal banking system, you had to pay in premiums of far more than 40K, probably more than 60K, but lets just say it was only 60K. Then you can borrow out the 40K and pay back 48K to your personal banking system which now has 48K in it but remember that you paid 60K in premiums to get there. He leaves that portion out of his numbers. So you are still negative on the deal. He says that this money is in your pocket but its not. Its tied up in a life insurance policy and you can only borrow it again, its not yours until you are dead. In addition in his math he counts the 48K that you paid that bank as a negative but doesn't count the 48K that you paid yourself as a negative. You still had to come up with that 48K to pay to yourself. It should be a wash, but he counts it as a positive like you got the 48K but never have to take it from savings or income. That's how he gets a 68K positive versus a 28K negative. It's incompetent math. But charlatans tend to be good at playing with numbers and making them lie in ways that seem truthful. His numbers fail first grade math but that's how he makes it look so good.

You will hear these "personal banking systems" advertised on radio and various other places and no one ever tells you what it really is. They will wait as long as possible to tell you what it really is. They know that if they mention the word life insurance too early in the process many people will not be interested.

If this is so great and such an open and honest way to easily make money why all the secrecy. Why don't they tell us how this works. What it really involves. The simple mention of a personal banking system that relies on cash value life insurance to fund the system would be enough to put some cards on the table. But they never ever say that.

To me, those are the trademarks of crooks, charlatans and con men. I am calling this person out and all like him who use these enticing and misleading tactics.

If you want to buy a bunch of life insurance and then after a decade of paying premiums borrow money from the policy and then pay it back, please contact this person. Otherwise, do not waste your time on this scheme. It won't be anything like what it sounds like it could be.

These schemes are driven by one motivation at the end of the line. Large commissions from huge life insurance policies. It definitely will help the person selling the policies to bank on themselves. The buyer, no so much.


This concept is bogus to anyone with half a brain. It's just a stupid mind game.
My lifelong Credo has been to follow the KISS principal in everything I did and worked on - "Keep It Simple Stupid".

Our money sits in three pots.
1) Our long term investments at Fidelity - currently 99.398%
2) Our Credit Union Savings accounts ---- currently 0.590%
3) Our Credit Union Checking accounts -- currently 0.012%

Our pension and social security checks go into Pot #2 which will have earned about $460 in interest this year.
We pay our bills from Pot #3, which earns very little in interest, and replenish it once or twice per month from Pot #2.
Pot #1 earns a large six figure amount which is immediately reinvested as it comes in about twice/month, 70% is tax deferred and tax exempt interest from laddered CDs and Muni bonds, 30% is tax deferred interest from four fixed income mutual funds, and the only withdrawal every year is to pay federal and state taxes. The largest taxable item we have is the tax due on the minimum required distributions from our IRAs. I use cash reward credit cards for everything and pay them off every month - I have had $22 in my wallet for about the last month and it's still there. My wife doesn't use a computer and still likes cash and checks and very occasionally a couple of credit cards. I write as few checks as I possibly can, so far this year just 33.

This is a very simple system for a 76 year old couple that has no debt to service. We know what our financial position is right down to the nearest dollar every day. It wasn't always this simple, things were somewhat different in the pre-computer days when we had three children living at home and mortgage and car payments to make and we were both working. Unlike so many people in these tough economic times there's no stress in our life whatsoever, but we both worked hard to get where we are.

So, when does the dealer get it's $40,000? Your calculations fail to show that you make that payment upon delivery.

Paying yourself interest doesn't make money magically appear.

The guy sells insurance and his system is based on whole life insurance. Yet there isn't a single mention of insurance in the article above. Anytime someone is pitching a product and doesn't tell you what the product is then thats a big red flag to me.

At first I felt that Apex was over-reacting, but after clicking on the link in the intro, this is exact what this author is trying to do. As Apex points out, you may have to pay more than $40K in premiums to accumulate $40K in cash value because you are paying for life insurance that you may or may not need. Also, as Dean points out, his math is flawed because he doesn't account for the $40 that you have to pay the dealer for the truck.

The concept of saving up the money ahead of time, paying in cash, and then paying yourself back with interest is a sound one. However, I would not use life insurance as the vehicle for this savings. In fairness to FMF, he probably posted this guest article for that very reason, even though it was a veiled sales pitch for a dubious product.

This is article is so far below the standard that I normally expect from this blog. FMF, please think more carefully about which guest bloggers you invite here in the future. I'm disappointed.

This is garbage.

At first glance, the idea of "being your own bank" sounds kind of like what the government is doing with Social Security. I wonder how well that's going to work out...

What a load of crap...call it what you want, you still lost $20K on that ridiculous truck and now you're paying back your own "bank" when you could instead be doing something useful with that $40+K.

I cannot believe this article was posted on a site that is supposed to have good financial advice. FMF I am very disappointed.

I learned nothing from the post other than the fact that the author wants me to click on his link. Once I click, he wants me to buy his ripoff whole life insurance policy.

I'm surprised this sort of material was allowed on FMF when he rejected a quality guest post of mine.

I am amazed at the comments.
My husband and I have been using this method for years.
I didn't see ANY ads for insurance.
We saved cash for many years (renting instead of buying...older cars). We are our own bank. We learned the concept from our grandparents- who never used credit. We kept money before marriage separate and joined finance when we married 28 years ago.
My sister and her husband borrowed money from her sole account- wrote up the papers- charged themselves interest- and wrote it off in taxes . He was a lawyer. Perfectly legit.
We followed suit with a HELCO loan to ourselves from my sole account. Again- papers were written- loan was real. We could write it off as well. Why pay the bank for that money? You have to charge yourselves the going rate (which was 8% at that time).
When we bought a car for cash- we simply put what would be our payment in the bank under the car fund. Five years later, when we needed another car, we that "car money" for the car. And started making payments again.
We paid cash for our first house. Sold it and bought the second for cash as well.
We have not borrowed from a bank in over 20 years.
We never made lots of money- in fact I would say that we are lower middle class in pay.
We are our own bank.
We are our own stock brokers.
Write up the papers- you will never foreclose on yourself!
And---neither of us have life insurance. Again- we are our own bank there as well.

This is not an option as saving 40k would likely take 2-3 years for a disciplined middle class person. If the truck was for business use, then you likely need it immediately. The only case something like this will work is if you have a retirement account you may borrow against (then you lose potential returns off the investments in the term) or if you have some type of mortgage account like an offset mortgage. If you have the cash upfront, then sure it may work, but most of us don't have 40k just sitting around in a cash account.

@Jan,

It's not saving money for yourself. It's buying whole life insurance and borrowing against the policy. That's not what you did and that's why this article is a load of crap.

@BarrellRyder,

Same thing, he is not talking about saving money for yourself and then using it when you need to. He is talking about buying life insurance. And it would take even longer to get the cash value of the life insurance to be enough to borrow 40K. As I said above you would probably have to pay in at least 60K probably more, before you would be able to borrow 40K back out.

NOTICE: THIS IS WHY THIS IS THE DECEPTIVE WORK OF A CHARLATAN. HE HAS EVERYONE BELIEVING IT'S A SIMPLE SAVINGS SYSTEM UNTIL HE GETS YOU MORE EXCITED ABOUT THE PROSPECTS AND THEN YOU WILL LEARN THE TRUTH OF THE SITUATION. THAT KIND OF MISLEADING SALES PITCH IS THE WORK OF A CROOK.

Just one final trigger for everyone to be aware of. I have been aware of these schemes for years. I didn't even click through to the guy's website like some others did here. I don't have to. There is a very simple trigger phrase that always means the same thing. Whenever you hear "bank on yourself" that is always a cover for a life insurance system. Every single entity that uses that phrase is peddling the same system. And they usually try to make it sound like this is some amazing system they developed themselves after years working in the financial industry and then they were able to develop this system. This scheme has been around for decades, probably longer. No one pitching it thought it up. It just hasn't been packaged as slickly as this until more recently.

I assure you, when you hear "bank on yourself" those words can always, and I mean 100% always, be replaced with these words: "buy life insurance." That's what bank on yourself means. The life insurance is the "bank" that you borrow from and pay back to. It's just a very expensive bank to fund.

So for those who got confused and thought he was just talking about a disciplined approach to building up a savings account that you can borrow from, sorry but that's not remotely close to what he means. And that's why he never mentions life insurance until you get further into his system. If he did he would get almost zero people to even look past the pitch. He wants to make you believers before you know what you are a believer in. The same way an Amway salesman wants to suck you in before they will mention the word Amway. I know his tactics. I know exactly what he is doing and the crap he is peddling. Many others here have figured it out after digging into him a little more.

For people who read these comments hopefully they will realize the true story before they follow up on anything he is promoting. He got far more exposure than I think he deserves on this blog for his snake oil.

I've been using this system for 9 year. It works just like the author states. The key is add a paid up additional rider. After nine years my dividend is enough to cover the annual premium, but I continue to pay the premium along with the max PUA. I've bought two cars that are now owned outright, and I've paid back my "bank" with interest that would have gone to a traditional bank. I suggest you read the book "Bank on Yourself", and study the concept before you bash the system. The reason folks don't bring up the concept of life insurance right away is because people tend to think whole life is a scam. I've benn living it, understand it, and love it!!

Apex:
Thanks for pointing out what the author's concept of "Becoming your own bank" really is. You are correct, this guy is a wolf in sheep's clothing and is in it strictly for his own benefit. He says that: "Over time you save the capital needed to purchase the truck in your private banking system". He made no mention whatsoever of the use of a whole life insurance policy. I took this literally to mean that your private banking system meant what is says, i.e. in my case it's my local Bank or Credit Union.
I don't have one penny of life insurance for the very simple reason that at this stage of my life I don't need it - that what my investment portfolio is for. I didn't become wealthy by buying things that I didn't need.

This is definitely the most deceptive topic that has appeared since I have been reading FMF and is why I have learned to distrust people that are trying to sell me something.

Apex has his head in the sand.....must be an old fashioned Dave Ramsey follower. You go your way and I'll go mine. I know for a fact I'll win with a secure finacial retirement plan. How much have you made in the market over the past 10 yrs?

I love reading the comments on here. It's really funny that when you look into it, legitimate banks have the most money stored up in life insurance, why is that? Because life insurance is one of the best places to store money. I have been storing my money in policies for years because you get guaranteed returns, tax advantages, protection from law suits, and death benefit on top of all of that.

This concept will continue to get hammered for the next few years but eventually those who make smart financial decisions and actually look into all the FACTS before they make statements about charlatans will acknowledge the benefits of this system.

Unfortunately it will still take a few generations before people realize that buying insurance like term your whole life and then dying without it is a waste of money.

Also when you use this concept correctly you will see the reason insurance isn't expensive when you craft your policies the correct way. I can't be mad at anyone here because most of these comments are just people spouting what they hear on entertainment radio from people like Dave Ramsey and so far no one has come up with any actual facts why this is a bad idea, only opinions.

I also just want to add that, regardless of if you understand the tax advantages etc of using insurance, using the basic principles of this concept EVEN IN A CD OR A SAVINGS ACCOUNT is still good advice.

The author here is only trying to teach us all something about how banks make money, and gaining that type of momentum on your side.

However, if you really get into the concept you will see why it is a better and more advantaged place to store your money over these other vehicles.

Jan, you said that you dont' have life insurance. Paying with cash is great. But the topic here is based on a plan that uses life insurance. I also don't see how "wrote it off in taxes" the interest paid to yourself. You can't just pay for things with cash and write it off interest as tax deductible.

Richard said: "legitimate banks have the most money stored up in life insurance, why is that?"

Really? I highly doubt that is accurate at all. Where do you get that idea from? Are you saying banks have life insurance policies on someone? Who's the policy on?

Quite a bee's nest kicked here. Interesting obeservation and discussion by all.

When I first read the article I was not sure of the concept and was wondering were it was leading to.

Kudos if this is the farce that everyone is talking about and I missed it.

I always try to question anything presented and how it pertains to me and can I use it.

I don't even know where to start, so I'll just start by making a quick reply to Jim here...

http://www2.fdic.gov/idasp/main.asp

-Search Wells Fargo as the "institution name"
-Click: 3511- This allows you to go the the National Institution.
-Now click: generate report

Note: These numbers are in 1,000's.

You might find that the Wells Fargo has 19,000,000,000- this means billion- in life insurance. I guess Richard was pretty accurate after all. Corporations and Banks do this all the time. Many corporate pensions are paid right out of a whole life insurance policy owned by the corporation.

These conversations always amaze me. I read them and I can't help but feel bad for those that have such negative comments. What they don't know here is blinding them. The author, Nick, is talking about the concept of banking. This simple concept helps people create a system in which they save more money, and they become accountable to themselves. These are sound principles of money, but most people can't seem to live them. National savings is credibly low, and a few years ago was in the negative. Some simple, obvious concepts need this kind of repetition, so thank you Nick.

Apart from that, there is clear misunderstanding when it comes to life insurance in this regard.

@Apex: It appears you've had a bad experience from someone that was selling you life insurance, and you've taken that small knowledge and tried to apply it here. You are attempting to compare apples and oranges. The concept that you are so quick to destroy is not based on life insurance. Its based on sound principles of banking. Its based on creating a private banking system that will allow you to grow rich without taking risk. This can be done in a variety of ways. In a shoe box in your house, in a savings account like Jan (I applaud you by the way- glad to here someone gets it), or in a permanent life insurance policy.

You're understanding of life insurance is the not the same type of life insurance that is utilized in this concept. By name it is, by nature it is not. What you are describing is more like agent insurance- profitable for them, terrible for you. The type of insurance that is utilized with this concept is a complete reversal to this type of policy setup. What we are utilizing here is a policy structured for high cash values, not high death benefit. A policy that is created to give a plethora of advantages to the policy holder. Life insurance happens to be used for no other reason than the simple fact that it will be much more profitable in the long run. Comparing it side by side with a simple savings account the cash value in the life insurance policy will incredibly outgrow the savings account. This is due to multiple things, but a few of those are guaranteed growth and tax free growth. And this includes ALL costs associated here- premiums,etc. No hidden costs that aren't being revealed. Cash contributed compared to cash growth.

I would encourage you to take a little deeper look before pointing fingers...

I welcome your response.

Jake

Richard and Dew Drop are the true believers who believe in this system. That's fine. I have no problem with people who believe in the system and want to use it. BTW, for super rich people who have very large estates and need ways to funnel that money around to escape the estate tax life insurance may have a place. To be clear the current law has estate tax exemptions for a couple for the first 10 million dollars so you have to be pretty wealthy before that play matters.

However, that's only promoted as a secondary benefit in these plans. People generally don't do these for that reason. They do them for the idea that they are saving money by not borrowing from the bank. But the amount of money needed up front to fund the policies exceeds what they would have borrowed from the bank. But that all aside, if you believe in the overall plan that's fine.

One has to ask oneself why something that is so much superior, and when putting pencil to paper is so obviously better in every way has to be hidden, couched in terms like bank on yourself, misdirected away from the true vehicle of life insurance. Furthermore, if this is so obviously superior once all the facts are known, why is it only a very small few who get it, who follow it, and who think it works as promised. One thing I have learned over the years is that anything that is vastly superior is quickly mainstreamed. That's why whenever I hear about a gas additive that gets you 30% more gas mileage, or some herbal medicine that is a "CURE" for cancer X, or whatever, I know its bunk. Anything that vastly superior will quickly be discovered for the amazing breakthrough it is and pick up adherents and followers until everyone knows of its superiority.

But when there just isn't any evidence of something that some people have been convinced of there are very few followers but those that are followers need to protect themselves from those that try to expose the fact that there is nothing behind their claims. We see this with the strong adherents to the idea that vaccinations cause autism. There have been dozens if not hundreds of double blind studies that show absolutely no causal link whatsoever and yet the adherents persist because they say, I have seen it in my life. It's true for me. My child got autism right after their vaccinations. Well how can I argue with that. And then something happens like the court case where a jury award damages to a defendant based on have taken a vaccine prior to onset and they say ah ha! There is proof. But of course a jury is no proof at all. A scientific study is proof and they don't have that so they latch on to the jury decision.

So how does that compare to the adherents to the bank on yourself system who have come out to defend the system in the comments here? They come out of the woodwork when someone attacks it and defend it as if someone attacked their child, or their religion. They behave as if they are injured by us fools who don't follow the bank on yourself god that they worship? Why don't they just shake their heads and laugh at us silly unbelievers. And if the system was so great, and so straight forward, wouldn't they be evangelizing it to convert us poor wretched souls rather than attacking us and saying how stupid we are and one day after we are old and dying and realize we threw all our money away on term we will finally wake up and see the light that we missed it and should have taken up this system all along. And then suggesting we are brain washed by listening to and following old beholden to people in the media who you dislike (such as Ramsey who BTW I don't listen to at all and don't agree with his take on debt. Which by the way since he is anti-debt he is an odd one to associate me with since he would be against taking out loans from banks which is closer to your model than I am).

Meanwhile the bank on yourself salesmen have a very long pitch they go through to initiate you into their system. Should take like 2 minutes to tell me the details. but it takes hours. Why is that? Because there are many emotional pitches about how rich people handle their money and about how you can be like them etc. I have seen all those pitches before too. Amway uses them when trying to get new recruits. Same tactic. Get the recruit excited about all they could do and be first. Then after about an hour they bring out the Amway word. This is the exact model that is used to introduce people to "bank on yourself." This is a classic brain washing technique. But I am brain washed by Dave Ramsey who I never listen to and don't really even agree with his concepts concerning debt which I have read about.

For something so great and so obvious, it sure is secret, and takes a lot of hype to sell. At least the adherents are zealous, but Amway adherents are zealous too.

@Jake,

Your response is an admiral attempt at justifying the system as opposed to the other responses here.

I am open to being informed. You seem to be well versed on the system (either as an owner or as a seller). Please lay out example numbers.

Pick an example policy of any benefit amount you want. Then lay out the amount of the annual premium. What the Death Benefit would be for that premium. Assuming the premium continued to be paid every year, what the cash value would be at 2,5,10,20,40 year intervals, and how much money could be borrowed from the policy at each of those intervals. Please also point me at an insurance based website where I can purchase a policy with the types of numbers you offer.

That is something that could be explained in 2 minutes. I can then analyze that and see if it makes sense. Everything that was typed here and can be found on websites of those promoting these ideas is hype and propaganda. So I again go back to if this is so great, why can't I find the above scenario laid out on any of their sites.

I am honestly open to any system that actually works. I don't like systems that hide their methods. They tend not to work. So bring it out into the light. Lets see the engine under the hood. If you can't do that, you just have a nicer response than the others but the same lack of anything other than a nice story.

@Apex. I think you are confused. You are acting like this concept is some kind of cure all, or some way of getting extremely high returns on something for doing nothing. I think you are missing the point.

The point of the concept is to store your money in a tax advantaged system and learn how to finance yourself and become rich without risk... that's it. So far as I have seen no one has claimed 30 percent return on your money or something so out of proportion that you shouldn't believe it. In fact I think the Becoming Your Own Bank system is very practical and beneficial.

Also, you act as if you need some huge chunk of cash to fund a policy. This also is not true. Funding your own personal bank is extremely reasonable, you don't have to be some sort of millionaire.

You seem like a very emotional person, who maybe had some bad experience. And I'm sorry to hear that. But none of your arguments are factual or valid. You argue that Becoming Your Own Bank is bad, but your arguments are about Autism, then about gas mileage additives (and if an additive could give me 30 percent more gas mileage then I would definitely check that out before just throwing it out).

Then you argue that Becoming Your Own Bank salesman try to sell YOU emotionally. But I don't think that is true. I think most will show you some really good factual based evidence on why the system works well.

And honestly, if anyone is being emotionally zealous on here and acting like they are defending their child it sounds like you are the one in that category. None of your arguments are based on facts and ALL of your arguments are based on emotion and false comparison.

And Amway? Seriously. There you go again. I mean good work trying to link up something negative to something like the Becoming Your Own Bank concept (sorry to anyone who loves Amway) but fortunately, I think most people who read this blog are more fact based and analytical and I don't think those fallacies are going to persuade many people on this site to your side.

Josh
All I'm saying is if you want to talk, that's fine, but let's talk facts.

Hi everyone, Nick here. Glad I could stir the pot a little with this article. I think a couple of people have hit home on what I was trying to accomplish here. I did not mention life insurance in the post for a reason, and that reason was made clear by a couple previous posts. This concept could be used in a variety of different vehicles the reason why life insurance is used is for the advantages is gives the user while implementing this system. (And jake hit the nail on the head by stating that "You're understanding of life insurance is the not the same type of life insurance that is utilized in this concept").

Yes I sell this particular type of life insurance. And Yes I use this type of life insurance to benefit by becoming my own bank (I just purchased a piano using my banking system). There is no way I would have ever dreamed of using whole life to become my own bank if all I had done was do exactly what Dave Ramsey told me.

Regarding the comment that I"m doing this so I can 'get rich off other people,' please go and do a little more research about how agents are paid when writing this kind of policy and you will quickly see that someone like me is making far less than I potentially could by writing typical whole life policies. The reason for this is because we want as much money going to cash value as possible - meaning as little death benefit as possible. A simple understanding of what an agent's commission is based on will promptly eradicate that argument.

Please take a moment to visit the FDIC's website (referenced in the previous post) and see how many banks and corporations have billions and billions of dollars in life insurance, it's not a coincidence.

Thanks for all the comments, and I hope I've helped some people step out of the box, at least for a minute or two.


Anyone could post some example numbers. No one does.

I don't understand this post at all.

Say you have the money to pay for the truck up front. In 4 years, you don't have $68k in value...you have $20k in value. You just didn't lost money paying interest.

Can someone enlighten me how you really profit from being your own bank? I read the article and read the comments, but this does not make any sense.

"This concept could be used in a variety of different vehicles the reason why life insurance is used is for the advantages is gives the user while implementing this system"

Please explain the difficult vehicles that could be used. And explain what advantages life insurance has. I am open to any method that actually makes me money, but you haven't done that yet.

I'll take the only example you gave so far.

1. I take 40k out of my own bank account and buy a car then I pay my bank account back paying interest on the money. Five years later it looks like this:

car: +20K
deposits into bank account: + 68K
total: + 88K

So, how about some other options:

2. I take 40k out of my own bank account and buy a car then I put the same money I would put paying myself into a bank into investments instead

car: +20K
deposits retirement plans: > 68K (get interest return on investments)
total: > 88K (provided I get any return on my investments)

3. I take 40k out of my own bank account and buy a car then I put the same money I would put paying myself into a bank into retirement plans

car: +20K
deposits retirement plans: > 68K (get interest return on investments and furture tax savings)
total: > 88K (not to mention future tax savings)

So, why would I want to pay myself interest back. All I am doing is sticking money back in cash with limited return.


I don't like the article because it fails to inform me how using this system will make me better off. I believe you should not borrow money to pay for an asset that depreciates in value - period.

Saying you pay cash for something or saying you are borrowing from yourself is the same thing.

Buying a slightly used truck would be far better advice to us readers.

Everyone is getting hung up on the price of the car. That really has nothing to do with the system. It is just an example.

No one is here to tell you what cars to buy. If you have problems with that don't ask your financial planner.

The system works by allowing your money to grow tax free inside a life insurance policy, while borrowing from yourself and paying yourself back.

Yes sure you could pay yourself back with interest in another account. But do you? I can almost guarantee the answer is no.

So just understanding the point doesn't get you anywhere, it's what you DO. And becoming your own bank is about changing what you DO, getting the banking effect on your side, and growing wealth.

I stand corrected. Banks do own life insurance. I was surprised they would own any significant amount of it. However it seems to be very different thing than whole life policies that individuals buy. In fact the bank owned insurance has its own name "Bank Owned Life Insurance" or BOLI.

The office of the comptroller of the currency of the US treasury says:
"Banks can purchase BOLI policies in connection with employee compensation and benefit plans, key person insurance, insurance to recover the cost of providing pre- and postretirement employee benefits, insurance on borrowers, and insurance taken as security for loans. The OCC may approve other uses on a case-by-case basis."


Bank owned life insurance is described by Investopedia as:

"A form of life insurance purchased by banks where the bank is the beneficiary, and/or owner. This form of insurance is a tax shelter for the administering bank, as it is a tax-free funding scheme for employee benefits.

Banks use BOLI contracts to fund ever-increasing employee benefits at a much cheaper rate. The process works like this: the bank sets up the contract, and then makes payments into a specialized fund set aside as the insurance trust. All employee benefits that need to be paid to particular employees covered under the plan are paid out from this fund.

All premiums paid into the fund, as well as all capital appreciation, are tax free for the bank. Therefore, banks can use the BOLI system to fund employee benefits on a tax-free basis."

Its basically just a trust fund used to avoid taxes.

Banks certainly do not own "most" of the life insurance out there.

I found a couple reports from 2007 and 2009 that cited figures of $100 to $120 billion total. Wells Fargo's $19 billion in their fund is 1.9% of their total assets. Other major banks have lower amounts. I'm going to go out on a limb and guess Wells Fargo is the bank with the highest amount on their balance sheets.

Census data for 2007 says 23% of households own life insurance assets worth median of $8k. So thats over $193B.

OK banks own insurance. Insurance companies own corporate bonds, treasuries, mortgages, etc.

" see how many banks and corporations have billions and billions of dollars in life insurance, it's not a coincidence."

You'll also find billions and billions of assets on bank balance sheets that are under water mortgage loans made to people with 0% down, no-doc, interest only loans. Banks also own billions of assets that are credit card loans to individuals with poor credit. Banks own just about anything and everything that anyone could think of buying.

Citibank has $53 billion in US treasury securities and around $4 billion in BOLI. SO does that mean we should all run out and buy US treasuries?

Why should any of us even care what banks own?

Glad to see some clarity being brought to the table here. Honestly I didn't expect anyone that hasn't heard of this system to read this article and understand it completely. This is a very big mind shift for the majority of people in America. So why life insurance? To name a couple of the reasons: Tax free growth, tax free dividends, guaranteed growth, no contribution limits, no age restrictions, the ability to pass on a legacy tax free.

There are others but these are some attributes you will not find in any of the other vehicles mentioned. What it really comes down to is having control of your money, never suffering from the downswings in the market and benefiting by being your own source of financing.

via Josh .. "The system works by allowing your money to grow tax free inside a life insurance policy, while borrowing from yourself and paying yourself back."

That appears to be the only vehicle which would make this idea possibly worthwhile. However, although it may have potential to grow wealth faster, it is wealth that I will personally never touch since it's only payable on my death. So, it's only really valid if I would want to leave the maximum estate possible and I already have enough money already outside it to fund the rest of my life.

Bruce, not sure I'm following you....what do you mean by "i already have enough money outside it to fund the rest of my life"?

I think another point that is being missed here is the fact that all your money will be liquid. Contrary to what has been said by someone who has referenced me as a "charlatan" (thanks for the vote of confidence) you will not spend a decade paying premiums. You will spend 4-5 years, during which you will have money available to you. After the 4-5 years you will have access to all the money you've contributed, period. You will no longer pay premiums you will simply use that pool of money as your bank.

It really is a simple process, honestly our country would be way better off if everyone managed their finances based on the principles of the banking system, regardless of the vehicle - heck put the money under your mattress, it's the concept I'm working on conveying here not the vehicle.

Nick,

Care to lay out the exact details of how the system works with specific information on the dollar values involved, what insurance you would buy and the specific guaranteed interest rate return on investment?

WHat is the surrender fee for the first 4-5 years? What is the insurance company that underwrites the policy you sell? What is your commission rate? DO we have to buy things from you to know how this system works? Books.. seminars.. etc?

@Jim - I understand what you are saying but once again you are jumping to conclusions.

Where did anyone say that you couldn't touch this money before you die? No one has. It's not true.

You can draw from this money, tax free, as long as the policy is setup correctly. The benefits of using insurance are not only for your family or those who benefit when you die, but also for yourself while you are living because of the tax advantages. It is not only payable at death, it is your cash value in the policy and you can use it however you like.

Now the second question you asked has an answer, it depends. The insurance that you use will depend on your particular situation. The commission rates for the policy is going to be given from the insurance company to the producer. So once again that will just depend on the amount of money you put in. If you really want to know the exact dollar that an agent would be getting from setting up your policy then talk to Nick because I'm sure he would be willing to let you know how much he is getting paid off of it, if you really want to know that isn't going to be a problem.

As far as finding someone to setup your policy, just make sure you are working with someone who knows what they are doing. I have run into a handful of people who let their insurance agent setup a policy for them, and they ended up getting screwed out of their money because the agent didn't know what he was doing. Look for people like Nick who know this structure and do it the way it needs to be done.

The fee for the first 4-5-6 years can be drawn up with a rough estimate when an agent knows your particular situation and can draw up an illustration for you. Which I am sure Nick would be happy to do. Once again much of this is going to vary situation to situation so it's best to show numbers for you individually.

Also, understand that, though there is a rate of return, it really doesn't matter. The point of this system is to learn to finance your own purchases and gain the velocity of money on your side.

For instance. The average American spends about 24-34 percent of their income on financing charges. And the typical American saves around 5 percent. So what does the average financial planner do? He is going to put your money AT RISK in order to get a high return for you. But, obviously, he would have to get you a 500 percent return in order to make up for the dollars you are spending on financing.

This is why we have shifted our paradigm. We are not looking to put your money at risk for rate of return. By redirecting money that you normally spend on financing charges you are going to accumulate more wealth. It's smarter, safer, and CERTAIN.

And I talk about certainty for 1 reason. Because it is so important. There are a good deal of people retiring right now who do not have certainty. Here are the reasons.

Some had 401k's that were in a good position for retirement. Until about 2001, then their 401k's got hammered. Now they don't have enough money.

Some had stocks. Same scenario.

Some had enough money to retire, but then wound up in a higher tax bracket than they expected to be, so now they don't have enough money.

And then you can look into your own life. 401k's and IRA's, they aren't liquid. I have run into a good deal of people who had to draw from these in order to survive, and they take a penalty from that.

These are just a few of the common problems that Becoming Your Own Bank combats. It gives you certainty, liquidity, and control.

Liquidity because if you get into hard times, boom you can borrow from your bank. No penalties. Also there are no maximum contribution limits. So you can store as much of your money up as you want.

Also this is all POST TAX INCOME. 401k's etc are pre tax dollars. I understand contributing up to your match if you are getting one, but if you are putting dollars in above that, then you are postponing your taxes. I don't know about you, but I don't see taxes going down anytime soon, and my bet is, they are only going up.

With Becoming Your Own Bank you have NO RISK. So you know how much money you have. Diversification, asset allocation, none of these things can guarantee you NO RISK.

So rate of return really isn't a factor in this. Yes it does help, and the tax free growth is great in a Becoming Your Own Bank policy, but there are better things here than getting a 3-5 percent rate of return.

Josh, Nick,

OK seems like getting details on the speciics is hard cause "it depends". WEll OK lets pretend for arguments sake that I am 39 years old male and I have $25,000 in cash in my bank. How would I go about using that to become my own bank? Run the specific numbers for me. Its just pretend so we can do it open in the public without me having to talk to an insurance salesman about all the exact details. If you need more information about me then just assume a number and tell us what you assume.

I'm all ears.

Nick, I am still trying to get a handle on this, and I know little about life insurance so correctly me where I am wrong.

So, let's say I buy a whole life insurance policy. I am just going to throw out some random numbers since I don't know how much these things cost. So, I get a policy with a 500K death benefit and my premiums are $10000/year. My premiums go into a cash value on the policy. So, five years later I have $50000 in cash value sitting in the policy. (Over the five years it appears I may also get some dividend payouts on my policy but also I may have some fees as well for the policy, so let's just say they cancel themselves out over time and ignore them for now).

Now, I can use that 50K as a loan for whatever I choose and pay myself back on whatever terms I decide. This gives me a chance to rapidly increase my cash value beyond what I get for by paying the premiums up to some Federal limits each year.

Now, if I die before my cash value hits 500K my heirs basically come out ahead (I haven't put more money in than will come out). Now, once my cash value exceeds 500k the insurance company doesn't have to contribute anything into my death benefit any more so they benefit as well. I guess this also means I could take the cash value out near the end of my life without having to pay it back and then it would just be subtracted from the death benefit.

Anyway, so essentially I am running a bank inside of a life insurance plan. I am getting basically the same return on my money if I had it in CD's or a money market at a bank (based on the dividend payout), however with this vehicle I also get a death benefit on top of it. Provided I eventually wanted to sit on hundreds of thousand of dollars of cash this could be a viable investment strategy. However, as far as I can tell I am going to be playing an interest rate game. Meaning the interest rates (after tax) on a bank account or money market account in the outside world would need to be equivalent to what I would get in dividends from my cash value inside the life insurance policy minus any fees. So, if interest rates spike I could be much better of with a real bank.

"though there is a rate of return, it really doesn't matter."

That needs to be quoted for emphasis.

Josh, Jake & Nick,

So how exactly are you three related? And is RIchard also part of the family business?

@Jim... So if you have 25,000 that you want to put into your bank, we spread that out over a 5-6 year period, by the end of that time period you will have 25,000 in your bank in cash value to borrow from...

@Jim ... Don't know who Richard is...

@Apex- I appreciate your response, and am glad to see that you, unlike Jim, are staying consistent with the topic and and not terribly difficult to follow. Jim- try to create a question that doesn't lead to difficult to follow responses. I clearly answered you question, then you went off on how that doesn't even matter anymore. First it does, then it doesn't. I don't have to time to was on ridiculous conversation. Now back to the topic at hand... allow me to hopefully shed some light, if possible. I think the reason that we, as agents (I am an agent and user) tend to not get into numbers is for 2 reasons. The first is that every situation can differ, its not a one size fits all system, it needs to be tailored to an individual. The second is that it requires quite a bit of explanation to get the mind out of traditional thinking. Which leads me to my second thought....

The follow the crowd approach to this situation, or to any situation for that matter, is a horrible argument. Just because the crowd doesn't do it, or does, doesn't make it good or bad. Do you realize how much debt we as Americans have? Does that mean debt is a good thing? Millions of people lost half of their retirement fund because they had all their money in the market. Does this mean that the market is the best place to have money? I certainly don't think so. Following the crowd is what has created the economic turmoil that we live through today. Let's all try and think for ourselves a little bit.

Now, if it makes you feel better to follow the crowd, there is a wide variety of people who use it. Businesses and banks heavily utilize this concept (and Jim, yes, this is the EXACT same type of life insurance that we use. Its a permanent dividend paying whole life insurance policy... no differences.... same tax advantages and same options), but there are many individuals that use it as well. I understand that you don't hear about it a lot, but there are a few reasons for that. The biggest of those is that in order to write a policy to maximize its cash value, the agent takes a huge cut in commissions. I would get paid much more by selling it with low cash value. So what do you think the typical agent will sell? A low cash value policy that pays them the most. This is what gives whole life insurance a terrible rep, and thats why you don't hear about this kind of thing on a regular basis. Its not beneficial to the agent. The relationship here is somewhat inversely related. Good for policyholder = lower commission for agent, and visa versa.

That all being said, I would love for you to see some numbers. The following link will give you a little bit of insight. I am working on getting a presentation that will demonstrate the actual rate of return breakdown, but this will give you what you are looking for.

PLI stands for permanent life insurance

http://www.youtube.com/user/becomingyourownbank?feature=mhum#p/a/f/0/DOR_6Cf5uhI

Jake

@ Jim ... This is directly from your blog... For those of you who are reading this the title of the post is "What Would I Do With An Instant Million Dollars" ...

"Keep Your Money Safe

"A lot of people who end up blowing their fortune have lost their money because they invested it unwisely. Its not hard to lose a lot of money: buy Enron ten years ago or make leveraged purchases of large residential real estate developments in Las Vegas 4 years ago. If you have millions you really have no reason to take unnecessary risks with the money in the name of making piles more money. Play it safe with your investments and don't take risks that could lose your fortune."

I would comment in this way. If you DON'T have a million dollars wouldn't that give you MORE reason to follow this advice?!

Jim this is EXACTLY what we do. Teach people how to keep their money safe.

Josh, Nothing wrong with keeping your money safe. I'm not saying whole life insurance isn't safe. Insurance is quite safe. So is FDIC savings acccounts, US Treasury bonds, AAA rated corporate bonds, municipal bonds, and burying it in a trashcan in the backyard.

How does your system work exactly?

I see something above about my $25000 being worht $25000 after 5-6 years. Was there supposed to be more to that explanation? What is your commissison on that $25000? What is the surrender fee during year 2? What is the insurance company in question that I should buy the policy from?

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