My previous article discusses the "government" layer and how excessive taxation limits us from accumulating wealth by taking money from us either directly or indirectly. That’s the most identifiable layer because we see the impact on every paycheck and on every purchase receipt. The next layer that hinders us from understanding and implementing IBC is not as easily identifiable. I refer to it as the "Corporate" layer. Qualities that create this layer include the following:
- Planned wear and tear
- Technological change
- Fees and Consumer Financing
Have you ever purchased a product that ceased to function a month or two after the warranty has expired? How many products do you own that have recently been replaced by a newer version? Do you think that these are coincidence? Heck no! These are examples of planned wear and tear and technological change. Corporations are in business to make money and the best business plan a corporation can create is one where it involves a periodic and predictable transfer of wealth from you to them. But that’s only half of the game. The other half of the game involves a corporation’s ability to successfully market something that was once a luxury is now a necessity. Apply this model to some large or popular companies you can think of.
I’d like to dedicate the majority of this article to #3, Fees and Consumer Financing. We do have to find a way to pay for all those post warranty broken down products and the newest version of whatever it is you just can’t live without. We’re already aware that excessive taxation prevents us from saving and accumulating wealth. For most of us, when planned wear and tear and technological change take place in our lives we don’t have a pool of money to draw from (or we have so little to draw from it becomes uncomfortable). So what do we do? We apply for a loan from a bank or apply for a credit card. Did you know that banks are FOR PROFIT CORPORATIONS? Non-profit banking institutions are called credit unions, but that doesn’t mean that they don’t make money. Corporations are in the business to make money!
How do banks make money? They make money by charging fees for their services and collecting interest on loans. When you apply for a loan, most of the time you will pay an application fee. If you pass their application (screening) process, you’ll be subject to their repayment terms which will include the interest they charge. The interest that you pay to financial institutions over your life will represent the second largest transfer of wealth away from you and your future.
To illustrate how big of a problem this is I’ll reference a study that Nelson Nash uses in his book, Becoming Your Own Banker. Mr. Nash discusses his study on the spending habits of American families and the four basic categories where families spend their after-tax money (take home pay). Those categories are Autos, Housing, Living, and Savings. Let’s carve out the savings component because we’re supposed to earn interest and not pay interest. As I write this article, the average savings rate in America is about 5%. So that means 95% of take home money goes towards Autos, Housing, and Living. Mr. Nash’s study of the typical American family calculates that for every dollar of take home pay, $.35 goes towards paying the interest on the Auto, Housing, and Living categories. If those numbers are correct, it suggests that the American family spends 35% of their money just to pay interest on the things we buy. I’ve read other studies that show the percentage of interest paid is higher. If the average person takes home $35,000 per year, $12,250 of that is transferred away to pay the interest portion on the debt. Remember the best business plan in the world? Financial institutions master this plan!
That’s a staggering amount of money that the average family is giving away unnecessarily. It becomes pretty obvious that reducing the dependency on borrowing money is one of the most important things one can do to significantly improve their financial situation. This is exactly what the Infinite Banking Concept accomplishes. Mr. Nash states, "Anytime you can cut out the payment of interest to others and direct that same market rate of interest to an entity that you own and control, which is subject to minimal taxation, then you have improved your situation."
It would take years of practicing IBC to recapture the full 35% of interest that is being paid. It IS NOT a get rich quick strategy. Recouping 10% is very achievable though. A 10% reduction in the interest that one pays would be the same as earning 10% on an investment portfolio. 10% more is 10% more regardless of how you get it. The difference though is that when you reduce the amount of interest you pay, you minimize the interest rate risk and taxes. A conservative, tax free strategy that can yield higher returns than most investments? We’ve seen it used this way.
To this point I’ve discussed two layers that prevent us from practicing and implementing the Infinite Banking Concept. The "Government" layer takes money from us either directly or indirectly. The "Corporate" layer creates strategies to help us voluntarily transfer our wealth to them. Both layers are instrumental in preventing us from creating a pool of money to finance our lives but they pale in comparison to the destructive nature of the last layer. The "Human" layer can be the worst layer of the three and the most difficult to identify.
Learn more about IBC by purchasing Nelson Nash’s book, Becoming Your Own Banker. Buy it here: