Becoming Your Own Banker | Lessons From The Greatest Book Ever Written

Remember, everything begins with the way that we think. When you read equipment financing, replace that. Financing all the things that I'll need throughout the course of my lifetime and then becoming part of the family banking system so that you are not only transferring money, you're transferring a wealth mentality. And that wealth mentality means that you're teaching your family a process.

I'm going to jump right to the first, first example in the equipment financing section. Now for everyone that is familiar with this, this is part four of the book and it begins on page 51. 51 is where Nelson begins explaining how he's going to set up the example, talks a little bit more about of course the policy owner's advantages of controlling the capacity of the policy contract itself. And then he talks about the money pool and what's happening actually with this particular person who's running a logging business. Now Nelson, when he created this example he actually had someone in mind. He, he himself ran equipment. He's referencing actually his nephew Terry who basically ran a logging business. And so how Terry could have financed everything in this way if he implemented Nelson's concept essentially. So we're going to go to financing illustration number one, which is on page 54 of the book because I actually want to highlight as we're setting up this example what is the example based on? So depending on what your version of the book. I know my first version of the book, Jay and yours, they didn't have box up at top that isolated the setup of the example. But this just a clarifying amount for people who have the newer version of the book. And it says who is this example based on? So we're looking at a male who is age 30, the type of life insurance policy. So the policy contract is a dividend paying whole life contract with a paid up additions rider selected. So the dividends are going to buy paid up insurance, etc. The original starting death benefit is $1,233,000. And where it says L65 is life pay to age 65. So what that means is you know everything at this time when Nelson wrote this book was based on a 100 year lifespan just like it is here in Canada. And this policy would be fully paid up. No more premiums could possibly go into it after age 65. So the maximum amount of premium that could be funded ended at 65. You couldn't put any more capital in. Nelson has here preferred non smoker 1499, let's just call it 15 grand. That is the minimum premium basically or what we would refer to as the base premium. And then the paid up additions rider is $25,000 or what we might say is the flexible premium. So the total premium outlay or the total capacity that this policy can fit, he can put a dollar more in on a per year basis than $40,000 to get this thing operational.

What you see here are a table of values from a policy illustration. What you see here is not the infinite banking concept. It's what we do outside of the illustration that essentially isolates the infinite banking concept. Nelson wants to describe to you using this illustration how the insurance company does all on its own, just administering the contract. And let's see how they do.

I want to highlight here these columns. So we have net annual outlay. Everything that Nelson did in these examples is shown as net. So we're always looking at the net number on any given year, the start year, the age. We have a loan column. We have cumulative loan, which we'll talk about the dividend earned on the policy each year at the end of the year on the anniversary date, net cash values, cumulative net outlay. This is going to be an important column. So you can see here year one, you put in 40, then you put in another 40, another 40 and another 40. So the cumulative net outlay is 160,000. And if you follow that on all the way down the screen, you'll see that that number stays level because we haven't added any additional premium. All the numbers in net outlay are zeros going down because in this example, Nelson wanted again set up that baseline for our reading from the same sheet of music. So in our example, he's only putting in $40,000 a year for four years and then no additional capital is going into the policy. He's going to let the insurance company take care of it. From there you'll see over in the far column the net death benefit. Notice how the death benefit way at the very top, our death benefit was $1,200,000. At the end of the first year that death benefit increased to 1.3. And you'll see it's increasing until it reaches 1684. Then the following year it actually declines and you'll see that it begins to decline repeatedly. Now that has to do with the fact that no additional money or capital is going in as premium, but the premium still must be paid. It has to be funded from somewhere. There is a requirement for $15,000 a year of base premium every year to make sure that this policy continues to operate. Okay. Otherwise the policy would collapse. On itself. So that is happening through a feature that is referred to as premium offset. So what this particular individual is basically doing, he's saying, hey, look, I'm going to take this dividend that I'm getting every year and I'm going to have it pay this premium for me. The premium that's required is 15,000 a year. The dividend is only $6339 a year. I think you can guess that we have a bit of a math problem here. The dividend isn't big enough to cover the $15,000 premium. We need to make up that capital difference from some place. Well, the place that it's being made up from is over here with the death benefit. So it's actually going to start surrendering some of this accumulated buckets of death benefit that we've increased, basically effectively selling it back to the life insurance company, pooling the cash component with the dividend, add it together until they have 15 grand so that they continue covering the minimum premium that's required. So just to reiterate, previously the dividend was going to help augment and buy more paid up insurance. Now that dividend is coming over here to make sure it can keep this policy in force. And a chunk of this death benefit is being sold off. So the death benefit keeps reducing and reducing and reducing. Now what you'll notice is if we followed this thing down a few years, Tom, something happens at year 17.

In line 17. We can see that the dividend now is big enough that there's enough to actually cover the entire minimum premium. And there's still $634 left. So you'll notice that the death benefit actually begins rising again. And from that point forward, the death benefit continues to climb on an increasing basis because the dividend is paying the minimum premium. And anything over and above that amount continues to go back in and accumulate and help grow the policy death benefit, which also forces the cash value to continue accumulating.

This policy is a unilateral, binding contract. The insurance company itself is the party to that contract that's responsible for doing everything that Richard is describing here. Right? The policy owner's sole responsibility is to pay the premium. And then when the policy owner exercises the offset option, it's the insurance company's responsibility to make sure that that dividend is being allocated toward offsetting that premium. And the remainder is coming from partial surrender of paid up additions. Once that direction is received by the gophers, your hired help, it is their responsibility to do it. So from that point Forward. If all the policy owner did was say, look, I'm hands off at this point, insurance company, you go ahead and administer this contract. The reason that you see in that dividend column those dividends growing in dollars and there's no additional outlay coming from the policy owner doesn't mean that the minimum required premium isn't still being paid. There's still a contribution to the net earnings of the insurance company because there's no money leaving the insurance company's money pool. When a dividend gets paid, the policy owner has the right to receive that as cash. If the policy owner did that, what happens? If you have $1 in the money pool and the policy owner's dividend is 25 cents and the policy owner takes out that 25 cent dividend, how much is left over in the money pool? Rich less capital, 75 cents. So what the policy owner is doing is saying, don't give me any money out of the pool. Keep the money in the pool and keep it circulating. Keep that money multiplying. This is just an accounting entry. The dividend goes to offset the premium. There's a partial surrender of paid up additions, but there's no money leaving the insurance company's money pool. The insurance company still continues to use that $15,000 every single year to contribute more to the net earnings of the insurance company.

One other key highlight here, notice how the cash value is accumulating. And even in year five when no additional premium went in, the cash value still went up approximately $10,000. And that happened again the following year and the following year and the following year. So even though no new outlay of premium went into the insurance company, the cash had to continue increasing. And the reason it's increasing is because it must equal the eventual death benefit at age 100. That's a contractual feature. So very important to understand. I'm going to bring us down to effectively line 36, age 65. Now remember, this particular policy was set up the way that Nelson did it is partly for his. The way he wanted to build the example is what's referred to as a life paid age 65. So at 65, at that age, you know, come 6, age 66, there was no premium that could possibly be paid. If you try to send a premium in, the insurance company wouldn't take it. They would send it right back to you. Okay, the policy was maxed out for what premium it could contain. Now we see a bit of a summary here. We can see what the dividend was in that year. 72,000 we have a total cash value of 1.5 million and a death benefit of $2,400,000. Now what I'm going to do is I'm going to draw your attention. I'm actually going to scoot right down to the bottom here. So what he wanted to highlight in his criteria for setting up this example was that the death benefit, the net death benefit at age 65 and at age 84 were approximately the same. They were relatively in the same zone. So that's how he designed and he used that as the barometer to determine what is a level amount of consistent passive income that this individual can take out of their system or receive by way of tax free loans or what have you from the system on a repetitious basis year after year until such a time as they kick the buckets. Now he said, look, if the guy wanted to take 100,000, could they do it? Sure, they could do it. But they would start eating in to this far column on the other side and the death benefit would start declining. They want to take 200 grand a year. Well, maybe it would decline very quickly and they would eventually be in a position where they wouldn't be able to continue doing that. What if they didn't need $92,000? What if they only needed $60,000? Well then the death benefit would continue rising and be much, much higher for a tax free benefit to leave to the next generation.

Take a look at the total outlay. It's $160,000, right?

So this column in green is the total outlay of what this person put in. $40,000 a year for four years. $160,000. No additional capital from the policy owner went into this contract.

Oh, did he recover all of his outlay?

Yeah, you bet. He got it back here basically two.

Years in, plus another 1.588 million more. And then he went on to leave 2.407 million tax free to the next generation. So the fundamental truth is your money must reside somewhere. Would Nelson ever suggest that somebody stop capitalizing their system after four years?

He definitely wouldn't. And in fact, if we get there, the last Example in this illustration 6 indicates putting more capital in and what the impact of that decision is.

So here's what advisors do when they want to sell in place a participating dividend paying whole life insurance policy. One of the features that they tout is how quickly you can stop paying the premium. This is not about highlighting the features and benefits of a product. This is about recognizing the fundamental truth that your money Must reside somewhere. If we stopped having our money reside here after four years, did we still do pretty good?

Yeah, we did okay.

But if we continued to have our money reside there, would the results be exponentially better? They have to be because of all the embedded contractual guarantees inside of the tool.

We're going to talk about what happens when more capital actually goes into the policy and see the difference. Capture this number right here. At age 65, the cash value is 1,517, 320. The death benefit, 2,400,000. That's with only 160,000 of capital outlay into the policy. So now we're going to go to example two. But before we get there, we have to kind of understand a little bit about what's going on with this particular individual. So this example again is based on Nelson's nephew, Terry at a logging business. He had four logging trucks, two tractors, and a tree shear. He was paying $16,000 a month in payments on all this equipment. Is this a heavy amount of financing for a business? Well, a business like this, not really. It's pretty standard. And today, of course, with inflation, it'll be a lot bigger number. But effectively almost $200,000 a year was going to someone else's bank, and it was leaving the business owner's control repeatedly. So the life company has to put money to work. Well, Nelson would say that he'd never seen the financials of an insurance company that hadn't basically placed blocks of money, or they're selling wholesale blocks of money to retailers, finance companies. In this example, he talks about Associates Finance, who's going to finance his logging truck. And they're just putting a lift on the money, and then they're collecting the spread, and then they're making a payment back to the insurance company. They're getting a payment from the consumer, and then they're giving the insurance company money back. So the insurance company has a cash flow, and the finance company is just collecting the jelly in the sandwich, as Nelson would say. Tom, we're going to go to exhibit one here, which Nelson talks about. So this is the financing package for this particular truck. So we're going to start off with the lowest cost item that he had operating in the business. He had four trucks. These are Peterbilt trucks. The price of the vehicle was $66,000. He had some trade in value from the previous truck. You know, he had it for four years. He trades it in. So he's still got to pay in order to pay out the balance of what he owes $52,600 or that would be the financing amount to finance. So this is the paperwork for Associates Finance to actually go finance an actual truck. When we scroll down to the bottom here, we see that the principal balance, so the 52,600, the financing amount and then we see the time price differential. In other words, this is the interest charge. This is how much money in interest dollars was going to go to Associates Finance over the entire four year period. The amount of cash flow that would be paid over four years out of the business's books onto the books of some third party bank was $72,096. That was the flow of financial energy leaving the logging business going to the bank.

Nelson said the 19,496, that was the jelly in the sandwich. That's what we want to recapture.

Now this is a 48 payment for four year payments of $1502 a month, which 1500 bucks a month is basically 18 grand a year. And we really want to isolate here and be, be very mindful that the financing charge is basically 19,500 bucks. What was interest volume all about? Volume, not the interest rate. Well, if you take the 19,496 and you divide that into the 72,000, you end up with 27%, in other words, of every dollar paid, the 72,000 is every dollar paid over a four year time frame. The interest cost, 27 cents of every single dollar ended up being the actual amount of interest. So volume is the physical dollars of interest over a period of time that's being paid, not the interest rate that's being charged. The rate is a charge on a declining balance of money. The volume is the mounting, the money that's going to walk into someone else's profit category that's not yours.

So again, important to remind yourself, the more you see infinite banking concepts, the more you will see you didn't see. And so when you read this example, read it very carefully because every future time that you read it, you're going to pick up on something that you didn't pick up on the first time you went through it.

So here we've got equipment financing illustration number two. And again what we want to highlight here is that basically for the first four years, everything that happens in equipment financing illustration 2 is identical to what happens in example 1. So no change for the first four years. Everything the same. Put capital in, put capital in, put capital in. There's no capital being utilized here. Nelson spent a lot of time walking through human conditions. He wanted us to Understand Parkinson's Law. One of the reasons why he's not showing any activity happening in the first four years isn't because this person couldn't do that. There is cash value in year one, in year two, in year three, there is opportunity to put things to work. He wanted people to understand if you can focus your energy and not touch money for a period of time. Show me someone who will do that, put money away on a repetitious basis for four to seven years without touching it, and I'll show you someone who's conquered Parkinson's Law. Here we start to see some different things taking place. In year five, we see that there is a negative 34,600 in cumulative outlay. This is shorthand, as Nelson would say. So there is a loan that's being taken for $52,600, which is the price of the truck. Remember, he had a trade in value for the truck. He had to come up with 52,6 in order to pay out the remaining balance of the truck. But he's going to immediately start making payments every month of $1500 a month. 1500 times 12 is 18,000. So $52,000 comes out and 18 goes in. The shorthand of that is negative $34,600. The yearly outlay is actually a negative amount because he took more out than he put in. In that year.

The interest that accrued on the policy loan balance was accruing at a rate of 8%. The actual rate that the loan was being repaid at was just above 15%. We should all understand that if the insurance company is accruing simple interest at 8%. But the banker Terry, the bank owner Terry, the borrower Terry's company, Terry controls the repayment schedule of the policy loan. So he set up an amortization schedule where if you determine the rate of interest, it would actually be more than 15%. That means that the policy loan at the insurance company is going to be repaid faster.

Here we can see in the following years you can see $18,000. That's what's going back in. So he continues making his four year payment schedule the exact same payment schedule he was going to give Associate Finance. No change, no difference. He's not paying any more or certainly any less than what he was already willingly paying to the other guys. Now the loan balance comes down and the result that we see is that in year nine, he finances another truck. Year 13, he finances a truck. Year 17, he finances a truck, and so on and so forth. So he continues doing and Repeating that process every four years the same way he was going to do. In other words, nothing changed. His business, his business practices didn't change. Now, when I come over here and we look at cumulative net outlay, it was $160,000 at the end of year four. But when we look at the end of year eight, when he finishes paying off the very first truck, the cumulative net outlay is179.4. Well, if you take179.4 and you subtract it from 160, don't you end up with $19,400?

That's the jelly in the sandwich right there.

The cumulative net outlay went up. In other words, more capital went into the policy. He paid the extra interest that the associate's finance would have charged. He made a commitment as the policy owner and an honest banker to make the same payment back in his system. And the excess amount as that loan got paid off quicker, that excess amount went into premium because there was room to pay premium inside of this contract.

Understand where the money is flowing to. Now, this is again such a fundamental understanding of the infinite banking concept. A fatal error in thinking is that it has something to do with interest rates. It's all a matter of where the money is flowing to and who that money is being put to work for and for how long. Did Terry achieve the objective? He got the truck objective achieved. Did he change the cash flow of his company?

Not at all. Not one iota.

What he did is he changed the process of where the money is flowing to and who it's being put to work for and for how long.

Terry didn't invest any money. There's no investment taking place here, not at all. There is simply the process of banking and the control over that process being harnessed in an efficient warehousing location, which just so happens to be managed by a reputable insurance company. If we look at those periods every time that he finances a truck, so you can see how these values keep building up and building up and building up. At the end of each basically financing period, every single time that they're done financing a truck, we have a higher accumulation of the cumulative net outlay. So now when we get down to the bottom of the page and we go to the same line, 36 again, it's a life paid of 65. Nothing's changed. We can see that the cumulative net outlay isn't $160,000. It's actually $315,000. 315,000 minus the original 160,000 that we had in example one, the initial premiums that we put in, we're left with a difference here of 155,200. In other words, 155, 200 is the additional capital or the representation of equivalent interest that would have went out the door to someone else's bank that's now been harnessed inside of this insurance contract because there was room to put the money there. If this policy didn't have the room to put the money because he kept funding the premiums for $40,000 a year, he could go get a brand new policy that would equivalently fit $155,000 a year over that same, you know, 30 year period of time would have been very similar.

Yeah, the 155,200 is the interest that he paid by shopping in his own grocery store. Because the cash value when the insurance company just administered the contract all on their own and there was no loan activity or additional premium being paid, the total cash value was only 1,517,320 and the death benefit was only $2,406,000. So who made out better here? Whose behavior impacted that? Was it the behavior of the life insurance company partially because they put the money to work that he paid in? It was his behavior. The policy owner's behavior is far more critical than the behavior of the life insurance company. This is the evidence of that.

So $155,000 is the extra amount the policy owner put in. The difference between example one and example two is like you said, it's about 500 grands. $471,000. It looks like most everyone would agree that it's okay to trade 155 if you know you're going to get 471 on the back end. Oh, and by the way, you get to utilize the capital the entire time that you're doing it. And the other things in life that you need.

Exactly. And Nelson said, what you also did is you took all the financial energy away from Associate Finance and you redirected that financial energy back into your own system. Your money must reside somewhere. What better place to have it reside than here?

Here's illustration one. So in year 36 we can see that the dividend in, in the first example was 71,009, 42. And an illustration to the dividend is now $95,071. So we have a almost a $25,000 increase in dividend. The dividend scale didn't change. Nothing changed at the insurance company level and how they managed and did Anything. The only thing that impacted that $25,000 increase in dividend was Terry's behavior. What he did had a direct and measurable, directly measurable impact on what the insurance company's performance was relative to his contract.

And the reason is that premium and loan repayment are net contributors to the earnings of the life insurance company that you co own. The greater your contribution to the net earnings, the greater your share of the divisible surplus generated.

Notice, at age 65, the death benefit is about $3,100,000. And at age 85, it's roughly $3,100,000. So again, Nelson set up this criteria. This is how he wanted to display things. He wanted the death benefit to be virtually the same at the point he stopped putting capital in and he stopped running his logging business to be basically the same as when anticipated death was going to show up. That's how he picked and dictated the passive income that was here. This idea of retirement's gotta go. Stop using that word in that language. That language isn't there to support you. Passive income is okay. Passive income is money that shows up without you having to do anything else for it. It just boom, it's there. So he's referencing passive income here. He's not referencing stopping your ability to be productive in the world and in society and doing things of value. So he just did not fundamentally believe in the word retirement. So this is illustration number three. It's page 60. So the purpose of this illustration is to show doing two trucks through the system. Everything up to line four, just like our previous examples, is the same, no change. The only difference now is the annual outlay shifts. So we've got double the cost of a truck coming out and double the payments. 18 grand times two is $36,000. So you can see he's being an honest banker, putting in $1,500 a month for two trucks right back into the system. And then every four years he's repeating that process the same way he did before. The only difference is he just financing two trucks instead of financing one. Same premise applies. I really want people to recognize and see here and observe. When we go from 160 in cumulative outlay year four to year eight, we're now one, almost 200 grand. Roughly $40,000 of additional capital or interest has gone into that system. What's changed and what's different? Well, he finishes financing the last vehicle is cash value number is substantially different and so is the cumulative net outlay number. In the last example, when he financed one truck at line 36, the cumulative net outlay was $315,200. Now it's 4, $7,400, substantial increase. In other words, if we take 470 and we subtract 160 of original capital from the baseline example, he's contributed $310,400 more capital. This is the interest over two trucks of financing that he was able to re energize the financial energy back into his own capitalization system so that he can now reallocate that to passive income and all the future things that he wants to do. But there's a statement that Nelson makes, and there can be even further improvements in the performance of the system. Just consider, at his age 66, he might sell all of his equipment to someone just starting out in the logging business and make a deal with him to finance all of the future needs for equipment when he has to replace each item. After all, he's got $2.5 million of capital to work with. So sure, he can create a passive income here of 150 grand a year just using this system, but what are the other opportunities that are available to him? What about what could he get for selling the business? What could he get for ongoing financing? Because he's created a whole business structure and could that be passed on as continuity to his heirs more so than just the tax free death benefit by teaching his kids how to grow a business? This is page 58. Now on page 58, this is where he, you know, I just referenced that example of like, you know, increasing the performance here, talking about, you know, creating another business by additional financing. But going down just a little bit further, there's this very important piece here that we want people to understand. This is a footnote that in my opinion is probably the most commonly overlooked piece in every single page of Nelson's book. This one little bullet here, I believe, is the number one thing that gets in people's brains to have them misinterpret or misunderstand when Nelson is fundamentally trying to teach us. Well, you can kind of see here again in our death benefit column, that net death benefit goes down partly because we have an outstanding loan, okay. And because he's also doing some surrender to cover that simple interest on the loan. So we see that transpiring until the end of the four year period. And then the death benefit is 1.712 versus the 1684 has increased by the time they've repaid the loan. And there's been additional accumulation now in dividends and Paid up additions happening. We're seeing a decrease on the net side because of the outstanding loan. So heaven forbid this individual died. Let's say he took out the next truck and he died here in year nine the very next day. Well, he's got a lower death benefit tax free to pay out, but he's also got a fully paid for Peterbilt truck. Three of them. To be clear, the capital net outlay goes from 160 to 218. So that increase is about $58,000. $58,200. That is that extra quote unquote interest or the representation of that interest that would have went to associate finance being applied as premium strategically through Nelson's usage into this contract. We're going to go to our summary point here at age 65, line 36. And we can see, I want to really isolate actually the dividend. In the first example, the dividend, I.

Believe it was 71,009, 42.

We have virtually doubled the dividend. In other words, the activity of strategic utilization of capital warehousing, paying yourself first, committing the money to you versus to a third party through a warehouse that you control, has augmented the performance of the exact same policy by more than double just what the insurance company is doing because of the policy owner's behavior. In this example we've got $2,900,000 in cash value. In example one where the insurance company did everything, on the baseline example it was $1,500,000. So again we've doubled by financing and shopping at home three trucks, we've doubled the output of the cash value. So he did pretty good if he lived, that he did pretty good if he died. Doesn't matter where on the chain that happened. I really want to isolate right here the cumulative net outlay column. This whole second last column is so critically important. The cumulative net outlay is 625 grand versus the 160,000 that we saw on our baseline example. That is a substantial increase in capital that has been deployed very effectively, very simply and very strategically into this warehouse of this machine of dividend paying whole life insurance.

If you scroll down in the cumulative net outlay column, do you see at year 38 that it's negative $24,000?

Yep.

The reason that it's negative $24, Thousand is because he's drawn out more than the cost basis of the policy. That's why it went to negative 24,000. But when he started implementing the process, what was he doing to the cost basis? He was increasing it. So now go back to the illustration we were just looking at that. It takes just a few more years before he's drawn out all of the cost basis. And when you draw out cost basis, do you pay tax on it?

Nope.

No, you pay no tax. Not only did he create more capital in the system, but and a larger tax free windfall. He also increased the basis of the policy so he could get more capital out without triggering a taxable event.

He also indicated that in equipment financing, this is the only place where he actually shows loans being utilized in the book. And he says if you switch to loans at that point, you can do things tax free. Now, in the United States, as of present day, the tax rules still allow for policy loans to be received as a non taxable income. In Canada, the rules are slightly different. You can create the exact same outcome. The difference is we just have to change where the money comes from. In the example, again, we can see, obviously as we go through each one of these segments, we see a continually increasing capacity of passive income. That's because Nelson's criteria never changed. In each example, he wanted, roughly speaking, the death benefit to be fairly level at the, you know, age 65 relative to age 84. And he was just adjusting the numbers to, to fit that example. How much you actually take out, of course, up to the individual. But in this example, hey, this guy gets out $2.6 million while alive and still leaves 5 million to the next generation. We talk about recapturing interest or recapturing the capital. Well, we're not necessarily recapturing the cost, let's say, of these trucks, but if we added up the cost of every truck that he's purchased at this point. Jay, do you think if we looked at this line 2.67 down here, or even the $3 million in cash value he has, he has more capital available than all of the trucks put together that he purchased. Now, as far as the equipment finance is concerned, this is the illustration that shows the most amount of financing in the business operation. Given the constraints of the size of this policy, this policy was limited to how much money he could put in on the front end. It wasn't big enough to pull in all of the financing that he was doing up front. It had to take time for it to build up to a stage where he could start doing more financing from the business. We can see that we've got our three trucks happening. But then in year 13, we see a difference. The size of the annual outlay goes up because he's now going to Pull in. Basically, I believe, all four trucks at this point.

That's right.

Financing all four trucks. And he basically continues to do that for the remainder of the time frame of the policy. It took him a while to build up the reserve. He didn't have enough to do it until he got to that stage. There was enough capital available inside of the cash value where he could now buy out every truck that he was financing from the third party. Okay, so he's doing three trucks, and then he's jumping to four trucks. By the time he gets onto the third rotation, let's call it. Nelson always wanted to point out that this is the only area where this particular individual has run into a problem. He can no longer be an honest banker in this example, because you can see here, he's paying back $108,000. And in year 65, he only pays $79,000. The reason is he can't pay any more premium policy because it's fully paid up at this point, and he pays the loan off the remaining loan balance. So that extra amount of capital that he should be paying as an honest banker, it has actually no room to go into this policy. The loan's down to zero, and he literally can't pay any more premium because it's a Life pay to 65, which means it's finalized. There's no more acceptance by the insurance company of premium dollars. What do you think that this gentleman should do if he wanted to maintain being an honest banker? We can see now that we've got 3.5 million, of course, in capital. And how much cash did we have in the insurance company? Only example, example 1, where there was no financing and the insurance company did.

Everything we had, like, in cash value, we had $1,517,320.

So this is when the insurance company did everything. Yep. Now we financed three trucks and then four trucks for the rest of it.

And a treasure.

We had a lot of financing coming through here, and we've increased this cash value now to 3.5 million. There's $2 million, basically of capital has been created by shopping at home. Wasn't working any harder. Didn't change his cash flow. Didn't have to do business with anyone else. He didn't have to ask permission. He didn't have to go beg the government for a loan. He didn't have to go beg, fill in any Mickey Mouse paperwork to get any of the financing done. He was able to do all of this on his own volition, at his own schedule, on his timing when it made sense, when he recognized he needed to replace a piece of equipment. That is absolute and total control. The passive income Nelson showing here is all based on a tax free passive income based on taking policy loans or collateral loans, depending on where you live, which border you live under. Okay. And the recognition of that is that you know that that possibility exists, but it's also the policy owner's decision as to how they want to go about doing that. And there are tax consequences that can exist with these policies. That's all relative to having again, coaching, mentorship and understanding of when it's that time to go and initiate passive income. How do you want to go about doing it? Tax rules do change. That is not something that's under our control, but those are things that we want to be mindful of. So as of today, and really as of when Nelson wrote this book, these are all representing a tax free passive income. The next thing that we kind of want to dial in is we're going to go back up and look at this total cash value amount. And you'll notice that here in year 12, of course, you've got a pretty substantial 365,000. And with the flow of financial energy coming back as repayments on that loan, you know, it doesn't take long for that to start accumulating again. Yeah. Now, Nelson, at this point, he would want to direct people's attention to another way of thinking. And that had to do with what is each one of those trucks and the tree shears. What do they all require? You want to go buy a vehicle today and you're going to go finance it with a third party. What does that third party require that you have to have in place before they will agree to finance that loan on that vehicle? Insurance checks. Insurance. Yeah, you got it. Now, Nelson pointed out to us here on exhibit one, we can see, we've got of course, a description of the vehicle and take a look at what takes up one third of the whole page, this whole section about insurance. Now, you'll notice on this particular area, everything says NA not applicable. A physical damage insurance is required by this contract until the indebtedness is fully paid. That means that the insurance provider providing collision coverage is going to charge a quote for these trucks, by the way, $2,100 a year per truck. You had four trucks. Well, that's 8,400 bucks a year of additional cash flow flowing out of the business's books. Going to some other insurance company. Well, the Property and Casualty Insurance Company, they probably bought some of the money from life insurance company's money block. Okay. And you know, what are they going to do with the payment stream that $8,400 a year? Aren't they going to go take that and go lend it out to someone else? So he doesn't own that property insurance company. He owns his whole life insurance contract, which makes him a participate owner in a big giant money pool that seems to be doing a pretty good job with the money based on how he's financing everything. So Nelson would say, look, this is based on $1,000 deductible on each truck. Well, if you had to create your own the makings of your own property and casualty company with your own physical goods of this nature, you would probably charge yourself a zero deductible. So wouldn't you have to increase the premium? Says at minimum you should be paying yourself $2,500 for each truck, which would be $10,000 a year. And then you should be applying that essentially into a premium on a new policy. So you're harnessing the potential. Let's take a look at how much capital he's got at the point where he thinks it's reasonable to go and self finance these vehicles. So roughly around year 13, year 12 here, he's got enough capital that he could go and replace a truck. So maybe it's an appropriate time because he has the reserve available that he could replace a truck and a total loss that he could start redirecting the flow of that financial energy away from the property and casualty company into new policies and new premium and start building up a whole nother reserve of capital, same cash flow, just redirecting who's getting the money. So now he's self insuring for those capital items, which means if he does have a total loss, he has to go to his reservoir to access it. But his reservoir is always accumulating and he has a pretty good idea of his business and how often he has to deal with a total loss on a vehicle.

And so is Terry now making a good living in both businesses? He's doing pretty good in the logging business and the banking business. And Nelson said everyone should be in two businesses.

What are they? Rich? The business which you do to make your living and the business of banking. And of the two, banking is the most important. We're not talking about liability coverage on logging or something. We're talking about like collision buyers, theft, collision related stuff where those are often optional unless you're financing it. If you're financing it with a third party, lender it is not optional. It's required. You can't get out of that deal. So it's important to understand where you have these layers of control that you can build into your financial life that can improve your financial outcomes simply by redirecting the flow of money that was going somewhere else into something you have ownership and control over.

And change your thinking, because remember, everything begins with the way that we think. When you read equipment financing, replace that financing, all the things that I'll need throughout the course of my lifetime, and then becoming part of the family banking system so that you are not only transferring money, you're transferring a wealth mentality. And that wealth mentality means that you're teaching your family a process. You're not encouraging them to go and buy a product, you're teaching them a process. Two most important words in the title of this book are right here.

Your own becoming your own banker.