investments and major purchas- es. It is designed to store and grow your money efficiently from the launch of your career, through your prime earning years and then throughout retirement. Further, it allows you subsequently to increase and pass on a death benefit that’s typically significantly larger than the cash value left in your policy, completely tax-free. Opportunity Cost of Using Your Own Cash. The graph shows the cycle of saving for major purchas- es and then emptying the account to make the purchase and starting to save again. The opportunity cost in this situation is that you forego the interest that could have been earned had the money not been spent (i.e., the account not emp- tied). In today’s near-zero interest rate savings environment, growth is negligible. But if your money is instead stored in an account that earns five percent interest or high - er, without the annual tax bill, the opportunity cost of not leaving the money in to compound throughout your lifetime is significant. Debtors face interest charges that compound against them if left unchecked. That’s why using your own cash may be better, so you don’t have to pay for those added interest costs. As real estate investors, we understand the power and potential to utilize other people’s money to enhance our investments; yet, limit- ing the total cost of paid interest is a massive boost to your wealth. The Infinite Banking Alternative. Accessing the capital without with- drawing it, staying on the compound interest curve, is a more efficient option, which recaptures significant interest costs that would otherwise go to third parties. This approach enables full, tax-free access to
THE OPPORTUNITY COST OF PAYING CASH
CASH
Save
The “Saver” doesn’t go into debt, but...also doesn’t grow wealthy
Personal Wealth ($)
Pay Cash
Time
$0.00 Break Even
your wealth while it continues to grow with guaranteed interest and dividends and provides life insur- ance, privacy and asset protec- tion. The investor achieves greater control of the financing arm since it is guaranteed by the life insur- ance company and allows flexi - ble and even no loan payments. A short example: Many buy-and-hold investors use policy loans to fund the down payment on their rental prop- erties. A $20,000 down payment for a $100,000 property could be with- drawn from a savings account with monthly net cashflow used to refill the checking account, or it can be borrowed from an insurance company and the investor’s $20,000 remaining at work, growing without tax in the policy. After 30 years, the checking account approach would have recov- ered $45,000 and the infinite banking approach would have grown to over $80,000. This simple step raises the property returns by preventing a sub- stantial opportunity cost of using cash.
In the next article, we’ll take a closer look at how infinite banking especially benefits those who invest in long-term buy-and-hold rental properties and fix-and-flips as well as how this strategy benefits private lenders and investors. •
Gary Pinkerton is a wealth strategist, military veteran, entrepreneur, speaker, best-selling author and real estate investor. He has degrees in engineering
from the US Naval Academy (BS) and the University of Illinois (MS), commanded the attack submarine USS TUCSON in his 25 years as a Navy nuclear submarine officer, was a Pentagon division director for the Joint Chiefs, and a senior ethics professor at the Naval Academy before retiring as a Captain. Gary has extensive experience designing, owning, and helping others implement high cash value life insurance, real estate, and alternative investments. He is passionate about furthering entrepreneurship and helping American families achieve financial dreams, establish a lasting financial legacy, and reduce taxes. He lives in Florida with his wife, Sue and their two sons.
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