Becoming Your Own Banker, Part 4: Laws of IBC

If you’re going to “Become Your Own Banker” and use the Infinite Banking Concept, you need to understand the laws of IBC. In other words, you need to know how to capitalize a bank and how to manage a sustainable bank.

Nelson Nash uncovers the fundamental laws of IBC that must be upheld for any bank, including your own banking system, to last. Join us as we continue the conversation through Nelson Nash’s book, “Becoming Your Own Banker,” today.

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What is Banking?

[3:12] “Really it’s a process of saving and lending. That’s what banks do. They take in people’s deposits and then they lend out for interest.”

This is a simplified overview of banking, though, at its core, that’s all banking really is. And if you want to control the function of banking for yourself, that’s what it’s all about—saving and lending. In your own system, though, you raise your own capital to use, and the insurance company lends it to you, rather than the bank. This is advantageous, though, because you don’t have to appeal to banks to get funds. Insurance companies are happy to lend you money if you’ve got the collateral in your Cash Value.

By learning how to control your own banking function, you create a lot more freedom in your financial life, and reduce your dependence on bank institutions.

The History of Banking

Banks haven’t always existed, but the earliest concept of banking came to be when the currency began to include gold, silver, and other precious metals. Because these metals were scarce and precious, they were highly desired, and robbery was common. Banks offered a solution: put the resources in one place that was heavily guarded, and it would be more secure than your home. 

After some time, early bankers noticed that people were depositing, but they weren’t really withdrawing. So they wondered if maybe they could use some of that money to make more money, rather than letting it sit idle. So they started offering loans to people seeking a little capital. 

Then, at some point, banking stagnated again, because not everyone was depositing their gold and silver. So they added an incentive: an interest rate on their savings. 

Over time, this became what we know today as our banking system, and this function is the same thing that you can do in your personal banking system. Your life insurance policy is not an actual bank, but you can make it function like the above by financing opportunities through your own pool of capital. 

The Laws of IBC: Building Up Your Banking System

If you’re building a banking system, what do you need? Capital. So in the early stages, you want to really focus on accumulating capital. Eventually, when you feel like your pool of capital is hardy enough, you can start capitalizing your cash. When you do this, you can create cash-flowing investments that make paying your policy loan and your premiums simple. 

Over time, what you’ll be able to do is accelerate this process. For example, once you pay off a policy loan with the cash flow from a property, you can redirect that cash flow to your premiums or even to funding a new policy. Meanwhile, the capital you’ve freed up inside of your policy can be used to buy another property, and you can repeat the process. 

This takes some research and know-how, but you can create a whole system of wealth by capitalizing on your banking system. While there’s time for accumulation-only phases, don’t be afraid to actually use your policy when a good opportunity arises. 

So let’s recap:

1. Open a policy.
2. Continue to make deposits by paying premiums.
3. Don’t be afraid to capitalize.
4. Be an honest banker and pay back your loans.

Personal Responsibility and the Laws of IBC

[36:45] “This really comes down to, again, personal responsibility, because if you are going to run an Infinite Banking system, you need to be in a position of making wise investment decisions.”

Your banking foundation depends on your ability to make wise choices with the capital you accumulate. After all, according to Nelson’s laws of IBC, you want to be paying back any loans you take so that you can reuse your capital. If you make speculative investments that don’t pan out, and you aren’t doing your due diligence, it’s going to get difficult to pay back those policy loans. 

While you technically don’t have to pay those loans, you really want to in order to have a successful banking system. When you don’t repay your policy loans, you severely limit your access to capital and reduce the usefulness of your policy for times when you really need it. 

Expanding Your Banking Function

Another possibility for your personal banking system is providing loans to other people. You could open opportunities to your family members, for example, or people you know that you’ve personally vetted. 

If you don’t have capital needs at the moment, and you have excess, exploring this opportunity can be fruitful. Of course, you want to ensure that you do your due diligence and create contracts when you lend. But by exploring this avenue, you can provide tremendous value to other people in your life while also earning a percentage. This is when the banking function really feels like a bank. 

Family Banking and the Laws of IBC

We mentioned offering loans to family members, and this is a really exciting prospect with family banking. Depending on how you structure your family, you can actually teach your children about the laws of IBC, or the Infinite Banking Concept early on. This may look like conversations about money, financing, and responsibility while your kids are young. When they’re a bit older, maybe you give them the opportunity to apply for funding by creating a pitch and a plan for repayment. 

A family banking system may even enable your kids or grandkids to attend college or start a business. 

You can also expand this to include your extended family. Maybe your parents need to finance a home repair and can get a better deal through you than their HELOC. By being in a position of liquidity, you can create these powerful opportunities for your loved ones, too. 

[46:53] “I think that this is just a profound exercise in imagination here. Because if you realize that by capitalizing your own banking system, and by gaining capital by having deposits (by paying your premiums), that is the key that allows your ability to then lend out capital. And if you have unlimited ability to lend out capital, then why wouldn’t you want to begin by capitalizing and putting deposits in by paying your premiums?”

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