Why Should I Build Capital with the Infinite Banking Concept?

Thanks to Kaye Lynn Peterson for help fixing my tragic attempt at proofreading.

Capital Neglect

Nelson Nash refers to the Human Factors in his book Becoming Your Own Banker. One of them is The Golden Rule — he who has the gold makes the rules. An obvious play on words, Nash’s version of the Golden Rule contains a valuable kernel of truth: those with control over financial value determine the way things happen.

That should feel right to you. After all, in economics, we say that money has purchasing power — literally, the power to purchase. From a more abstract point of view, money is a claim to the organization of resources in the world. While a lone human being can’t construct a 2,500 square foot home in three months’ time, he can cause it to be built simply by transferring money, by paying the price. Money is the key to leveraging the creative dreams and desires in an individual’s mind and manifesting them into existence.

“Yeah, Ryan, this is sort of obvious…”

And that’s fair! But wouldn’t you think that if it was so obvious, that individuals — especially the financial advisory community — would offer ideas on how to maintain maximum control over money? I mean, if money is so necessary for man to affect real change, to impose his will in the actual, physical world, why doesn’t the financial advisory community talk to us about it? Where are all the strategies to acquire, protect, grow, and use money?

The one use for money we hear about in the financial advisory community is investing. To be clear, this is the opposite of what I’m talking about when it comes to accumulating money that you actually intend to use. As I argued to the membership of the Nelson Nash Institute at the 2019 Think Tank Symposium, half of the idea of investing is to give up control over money. The other half is the motive — to generate a monetary return. But you can’t have the second half without the first. You’ve got to give up control of money to whoever controls the investment so that guy or gal can go put it to work and get you your return.

The subject on which we hardly get any advice is how to best accumulate and control financial value. And when I talk about financial value, I don’t just mean money or the value in the savings account. I’m talking about capital — the financial value of property, after accounting for any liens, that you intend to use to acquire other property. This certainly can be the value of your checking account. If you have $5,000 in the safe in your basement that you intend to use to buy a motorcycle on Craigslist, that’s capital. It’s the money value ($5,000) of property (the physical Federal Reserve Notes — the cash) that you intend to use (spend) to buy other property (the motorcycle).


Capital, personified.

Capital, personified.

Frankly, capital is the neglected step-child of modern finance. It sort of “comes with,” but is never sought out. Sometimes someone might do something interesting with capital, and everyone thinks it’s neat and exciting when it happens, but like always, we start to forget the step-child. After all, capital isn’t why you got involved in the first place. You bought the home to live in it. You started the business to increase your income. You bought the gold, silver, and bitcoin in order to buy low and sell high. Capital (the financial value of ownership) is the side-benefit, and just like the side-child, it can become a side-problem. If the housing market moves against you, you might go upside down on your house. The banker’s valuation of your business is never what you think it should be. The price of gold, silver, and certainly bitcoin can fall. In those cases, your capital, your equity, is negative — you paid in more than the asset is currently worth — and now you’re annoyed. If the financial step-child is really acting up, you might be worse than annoyed. You might be in danger of foreclosure. The bank might be close to seizing your equipment. Your wife might exile you to the couch for buying so much cryptocurrency right before you learned that the crypto-exchange operation was a giant Ponzi scheme from the get-go. And just like that, the financial step-child went and ruined what should have been a great thing.

We don’t care about capital until just how neglectfully we’ve treated it becomes apparent. As my mentor James Neathery says, “there’s never a problem until there’s a problem.”

Instead of treating capital like the source of tremendous financial opportunity and prosperity, like the solution to major, systematic problems in the individual and business owner’s finances, we treat it with severe neglect.

In Becoming Your Own Banker, Nelson Nash tells a story about Panasonic. Panasonic executives wanted to build a plant in Mexico. But the Mexican government required a 51% ownership stake in the plant. What did Panasonic executives do? Of course, they politely declined the Mexican officials’ offer. “Panasonic had the gold, so they made the rules,” as Nelson writes.

Put differently: the Mexican government neglected the value of capital, so Panasonic — who knew better — took it elsewhere.

Understanding the dramatic extent to which we have neglected the value of capital is the first step in understanding why you should use the Infinite Banking Concept to strategically accumulate it.

Why Infinite Banking

Frankly, most who understand how good Infinite Banking is don’t know why it’s so good. I’ve had clients tell me these very words: “I read the book (Becoming Your Own Banker), I’ve heard Bob (Murphy) talk about it (the IBC) on podcasts, and I’ve read some blogs and articles. I know this is good. I’m thinking it would be good for me to do… But what is this?”

We’ve already laid the foundation for understanding what Infinite Banking is. We talked about capital. We reviewed how neglectfully we treat it. Suppose we didn’t. Suppose we took the position that it might be a good thing — maybe even the best thing in all of finance — to exercise control over massive sums of financial value. Well if that’s the case, and it certainly ought to be, then we might ask: “what is the best way to build and deploy capital?”

Answer: the Infinite Banking Concept.

That’s what the IBC is. It’s the best way to build and deploy capital. And those who fail to build and deploy capital under their own control will be dependent on those who do (the reverse implication of Nelson’s Golden Rule). Infinite Banking is for people who refuse to be financially dependent.

Next question: Why? Why is it that the IBC is the best way to build and deploy capital?

I’m going to tell you the answer and then I’m going to explain it. I have not seen anyone else isolate and highlight this fact. I didn’t invent it, but I did recognize it. Maybe someone else has too, but if they have, I haven’t heard about it.


What practicing the IBC looks like in practice.

What practicing the IBC looks like in practice.

Answer: When you leverage capital according to the IBC, the lender also guarantees the value of the collateral.

Let’s back up. The idea of capital is that it is financial (monetary) value that you are going to use in order to acquire wealth (goods and services). I won’t expand on this too much here but there are two ways to use capital: (1) you liquidate (sell) the asset in which it’s built, or (2) you leverage it — treat it as collateral and then borrow from someone else.

For our purposes here, it’s important to realize that leverage is the preferable method of using capital — if done the right way (which is to say, not in a way that fosters continued dependency). The main reason leverage is preferable is that it’s more efficient. You get the services of two assets (the one you’re collateralizing and the one you’re acquiring) at the same time.

Therefore, when surveying the potential assets in which you might build capital, you’d want to look at the terms of leverage. How beneficial are they to you? How much control do you retain when you do leverage the asset? What restrictions exist on what you can do with the money you borrow? What obstacles must you clear in order to successfully leverage?

With most credit transactions, these obstacles are high and costly. The reason is that the lender — in the worst case scenario — is concerned that he won’t get his money back, even if he has to seize the collateral in the deal. That concern originates from the fact that the future value of the collateral is almost always uncertain. Property is only worth what someone will pay for it, and almost never do we know in the present what someone will pay for something in the future. (This, by the way, is true despite the propagandistic prognostications of federal monetary authorities and financial entertainers who unceasingly hype unrealistic projections about constant asset price inflation.)

This all changes when using properly structured, dividend-paying whole life insurance.

With whole life built according to the IBC, this uncertainty is eliminated. Whereas with all other assets, the lender cannot guarantee the future value of the property, with whole life insurance, the lender can. Why? Because the entire asset is a contractually enforceable system of promises from the company. Housing prices will rise and fall, and the mortgage lender has no control over that, but the value (called the cash value) of whole life will only rise so long as you continue to make your premium payments.

How can that be? How can a company guarantee that the value of something — of anything! — will continue to rise? The answer lies in the mathematical relationship between premium, death benefit, and cash value.

The cash value, mathematically speaking, is just the net present value of the difference between the death benefit and the premium you’ve yet to pay. As you continue to pay premium, we subtract a smaller and smaller number from the future death benefit, so the residual, the difference between the two, must grow. Therefore, as long as you continue to pay premium, the cash value will rise, guaranteed.

Of course, because this relationship is based on God-given, bona fide, mathematical law, the life insurance company is willing to stand behind the guarantee by contract. Therefore, when you leverage cash value in whole life insurance and borrow a policy loan from your insurance company, the lender guarantees the value of the collateral.

In practice, what this means is that the life insurance company does not share the same concern as the mortgage lender (or any other conventional lender). The life insurance company isn’t concerned about non-repayment. Eventually, the insured individual will graduate. When the insured dies, a death benefit will be paid. Any outstanding loan balance at that time will be paid by the death benefit. You can think of it this way: an outstanding loan balance creates a lien against the death benefit. But who is going to pay the death benefit? The life insurance company! Therefore, the company knows it’s going to get paid. They’re the ones who would make the payment!

This is why we eliminate every cost associated with the typical credit transaction (all of which are paid by the borrower)— except for the time-value of money (explained further here). This includes lengthy, time-consuming applications, physical collateral assignments, repayment schedules, use-restrictions, months of contract negotiations, dependency on bank personnel or lending policy, exposure to the uncertain macroeconomic climate, exorbitant interest, fees, points (and other euphemisms for more money), bill collections departments and their hostile staff, and on and on. These costs — often non-monetary in nature — are sucking Americans dry and most do not recognize it. They are eliminated for individuals and businesses operating according to the IBC.

I do not believe life insurance companies fully understand what they have to offer people. The stock and trade of their business is a product that, by its very design, is the optimal vehicle in which to accumulate and through which to deploy capital. It is the solution to the single greatest drain on the resources (and therefore the livelihood) of the individual — be he an employee or entrepreneur — that is, the cost of dependency on third-party capital.

If you see the value of controlling large pools of financial value (I have not met someone yet who would not like to control large quantities of financial value), and if you consider how best you might prepare to accumulate it, then you cannot ignore the Infinite Banking Concept.

Please note, I have not once mentioned investing — a horse which has been beaten thoroughly dead by the various money management, personal development, and coaching cliques. The investment discussion is incomplete without a discussion of capital because investing for the under-capitalized is a different world compared to investing for the well-capitalized. See here for more on that.

I have mentioned this idea in past posts, but I wanted in this post to bring these two ideas together: that capital is neglected, and the reason the IBC works as well as it does (or in other words, why it is the best way to repent for our neglect of capital) is that the lender in the policy loan transaction is also the guarantor of the value of the collateral. This does not happen anywhere else in the financial world.

Thanks for reading.

This post also appears on Ryan’s Medium blog.

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