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R. Nelson Nash dialogs in his seminars about there being just four things necessary in order for you to become your own banker. Being very fundamental and yet essential, I thought I would discuss these four essential steps for our readers this week.
The first step is that you must think long term. Short term thinking is what cripples more people financially more than anything else, in today’s world, besides procrastination. Most folks unintentionally overlook the fact that the purchase of a new car or big screen TV will cost them 15% to 20% more than if they were to self-finance that purchase themselves. But even worse than that, most people believe that paying cash for that car or TV will save them money! And that misconception comes about because of short term thinking instead of long term thinking.
Consider this fact. All the money you spend is costing you the yield you could have earned on the money had you not spent it. Therefore, you finance everything that you purchase in life by either giving up interest to someone else for the use of their money or by giving up the yield you could have earned yourself if you hadn’t spent your own money. There are no other options within the conventional method of financing.
Secondly you have to save. Without savings you are always living just one step away from disaster. If something occurs that would make you lose your job, your health, your ability to produce, or produce as much as you are producing today, then you will suffer greater than if you currently have a savings plan in force. Savings are intended for the day---that inevitably occurs---when you can’t work and/or produce as hard as you are currently working and producing today. Everybody has heard the truism, “Pay Yourself First,” but very few practice this or even really understand what it means.
Paying yourself first doesn’t mean paying your bills, purchasing your clothing, your groceries, or paying your mortgage first. It means paying yourself a certain percentage of what you take home, daily, weekly, bi-weekly or monthly and not touching it again. Instead you let it grow---compounding in your favor. This creates a pool of money, or capital, which can be used to self-finance what you need and have to purchase in life. Once your needs are self-financed then you will be able to finance the needs and desires of others and your money pool (or capital) will grow exponentially.
Of course the best place to “save” this money you are paying yourself first is by purchasing participating whole life insurance with it. This long term thinking will allow your money to earn guaranteed returns while you have access and control over the use of your money for your self-financing operations.
Thirdly, once you have capitalized your life insurance, it is time to borrow from the insurance company (using your policy as collateral) so that you can self-finance the things that you are already purchasing. By self-financing these things with the money borrowed from the life insurance company, money you spend on your purchases (the principle) will come back to you (inside your policy) for you to use over again. The interest that you pay on these items which you self-finance will also contribute to the further capitalization of your life insurance creating and even larger pool of money which you will have exclusive access to for running your financing business.
Finally, the fourth step is, pay yourself back! The best way to kill this beautiful self-financing business of yours is to default on your own loans. Remember this! You have to pay someone for the cost of financing anyway. Why shouldn’t you pay yourself because when you do all the money you pay will be yours to spend over again?
And that is, in a nut shell, the four steps of Becoming Your Own Banker. Of course there’s a lot more non-essential details, about how the life insurance works or how the life insurance company can afford for you to take advantage of this beautiful system, but these are the essentials steps and they will work regardless---even if you never own a participating whole life insurance policy. But why would anybody want to give up the dividends and the death benefit which the life insurance company will provide you when the cost of that insurance has been eliminated by the financing system which you can create from using participating whole life insurance? And the answer is nobody does once they understand what is really happening. My hope is that this review helps you to better understand what is really happening so that you can continue (or begin) benefiting from this incredible system of self-financing.
by Tomas McFie