Nelson Nash’s Becoming Your Own Banker: PART III Lesson 5 How to Start Building Your Own Banking System

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Content: Page 45, Becoming Your Own Banker Fifth Edition

Now, let’s see how we are tracking with the concept. While looking at Table 1 on page 45, note that both twins could finance a $10,550 trade-in package at the end of the third year.

Question:  If they need to trade cars at this point, should they use their systems, as depicted, to do so?

Answer:  Yes, provided that they both play “honest banker” with themselves, i.e. make payments of $3,030 per year back to their respective systems, plus continue to capitalize them for the full seven years.

Question:  If they both do this, what will happen to all the performance numbers below year three?

Answer:  The numbers, in both cases will increase because the car payments of $3,030 per year are slightly better earnings than the 5 1/2% interest that the C/D is paying, and that the general portfolio of the insurance company is paying. It is just like the extra two cents for the can of peas in the grocery store example in Part One of this course.

Note that a $21,100 car financing package could be handled at the end of year seven in both methods.

Question:  If they both did so, what should the payments be to each system?

Answer:  $6,060 (or $520.00 per month).

Question:  If they both did so, what would happen to the results below that point in the schedule?

Answer:  They would both improve for the reasons cited earlier — but Method E would improve more than Method D because it is earning both interest and dividends.

Remember that both parties could elect to pay $7,000 per year — in which case the figures in both examples would increase even more. The “extra payment” would not be taxable to either system and would go directly to the “bottom line” — increasing the capital that could be put to use for the benefit of each and thus, increase the total yield. But –Method E would accelerate faster because of earning both interest and dividends for the benefit of the policy owner.

Why does Method D have better net figures during the seven years of capitalization?

Because, in Method D, the fact that the bank went through a long and costly process of getting established has been left out of the scenario.
In Method E the policy owner is starting a business that never existed before. There is always a cost of starting up a conventional bank. The life insurance company is simply, in effect, an administrator of the plan. Earnings (dividends) and interest (guaranteed cash values) both go to the policy owner. But the long-range results do not show up until much later.

Again, compare the numbers at the end of year 51 in the schedule. Subtract the small number from the large number ($964,638 minus $258,827). The answer ($705,811) is what the stockholder at the bank earned if it were compounded without taxation over that time frame.
Now do you see why the banker went through that gory mess that was described in Part One?

We have covered the basics of what the Infinite Banking Concept is all about and you have seen a common example of how it works. In Part Four we will look at an example of business use of the concept. Be sure to bring an extra pair of socks for it because “it will knock your socks off!”