The 4 Stages of Infinite Banking Explained

You can tell really fast if someone wants to commit to doing IBC the way it was designed to be done, which is really stage three, stage four, or whether they just want a safe place to store money. But the biggest issue is when you commit to a lower stage but think you should be able to do all the fun things that people are doing on stage three and stage four and have it make sense. You have to add intention. Money has to be put in on purpose in advance to be used for things. The biggest issue we're trying to solve with the stage mentality is just simply understand that if you have cash flows that you're not choosing to go into ibc, you're just going to end up using the policies less and that's okay, but just be okay with that because you'll get into trouble when you think you got to do all these fun things and cool things, but you haven't redirected the money yet. I really do believe that the infinite banking concept is such a powerful concept that it can actually benefit pretty much anyone that implements it. It's not even a question I have anymore in my life. Maybe at one point when I first started, I was like, is this really for everybody? Now, essentially, I do believe, I think everybody can benefit from becoming your own banker. The question is typically not, hey, can this benefit me in some way? Can this help solve my problems or help me achieve the things I'm trying to achieve financially? That's normally not the question anymore. The question is really, at what scale does it make sense for someone like me to implement the infinite banking concept? At what stage of IBC does it really make sense to implement in my own personal life? And that is where we're going to dive in today. That's actually the whole purpose of the four stages of infinite banking, that, you know, framework. The problem that this solves, the framework does, is it essentially allows people to see that infinite banking can kind of mean different things to different people. And maybe you have an image of what it really means to you that will put you in one of these stages. But on honestly, you may not understand that there's actually people doing something completely different with it and benefiting in different ways from it, and it can become as big as you want it to be in your life. There is four distinct stages and we've given them loving names for these stages. Stage one is what we call the saver stage. Stage two is the capital builder stage. Stage three is the entrepreneur stage. And stage four is what we call the lifestyle stage. And what is actually going to put you in, in each of these stages is not what you use your policy to do while you're doing infinite banking. What actually is going to put you into each stage is how much of your cash flow are you willing and comfortable to run through a policy first before you end up using it for the things of life. One of the first stumbling blocks for most people is they hear about IBC and they want to do all these amazing things with it. But yet at their core there is some sort of fear that keeps them bottled down. And so they think, well, it makes sense for Jason to go, you know, run all of his investments through policies. It makes sense for Nate to pay his taxes and charitable giving through policies. I should go do those things. But Jason and I, we're probably over here in the lifestyle stage and you might find yourself over here in stage one, just kind of getting started and getting your feet wet. The biggest problem that we're trying to solve with this is that people try to cram different transactions that actually exist. For someone who is committed to IBC at a high level, what actually happens is a client may commit at a kind of a low level, but think that those transactions that all the IBC pros are doing are things that they should be doing too. And that's where confusion reigns supreme. People get very confused and they honestly get a little upset. They think that there might be something that they're totally missing. In the saver stage, this is the starter for most people. I actually think of the saver stage as essentially the most objective stage. This is at the point stage one where I really do believe that everybody can benefit from infinite banking. And in the saver stage, most of the time all you're really going to do is say to yourself, believe that dividend paying, whole life insurance policies that are built to practice the image of banking concept, that they really are essentially the best place for my safe capital, my liquid capital. And so most of the time, whenever someone's in the saver stage, their main thing that they're going to do is they're going to move their emergency fund into their policies. That's the kind of the style. Essentially they're going to take money that's already in the bank is what's going to end up going into a policy. Banking itself is not built for us depositors to really over a lifetime receive much benefit. Of course our deposits are what the bankers use to make a whole bunch of benefit. So essentially whenever they hear the message of infinite banking, they're like well, maybe I'm not ready for the Nate and Jason style ibc. But what, at least what I know is that the policies and the infinite banking concept presents to me an opportunity to use my liquid money that's already in the bank, that's already safe money. And it allows me to transition that into a place that's going to produce a lot more value to me inside of these policies, both for right now and for generations to come, than if I just left it in the bank. You could also find people that are that think of IBC as maybe they're learning about it, but it's going to be kind of a diversification play maybe where they're saying, I just need some six safe place to store some money. And all of this is fine. This is the saver stage where we really just take a small slice of your overall financial pie and commit that to policies because we think it's going to be better there than it would be inside of a typical financial instrument like a bank account, savings account, things of that sort. And maybe you'll take some money out of other places to move in in a diversification play to have a safe spot. Here's what I want people to understand about the saver stage of ibc. In this stage, a hallmark characteristic is that you will rarely ever use your policy. In the saver stage of infinite banking, we rarely ever use the policy because there essentially would be no reason for the majority of us to end up using a policy because we have so much of our financial life that is never even entering your own bank. We weren't ready for it yet most of the time. What this also entails, a hallmark characteristic of the saver stage is that you got started but you didn't have any intentionality. A hallmark characteristic of the saver stage is you got started believing that it was a great place to store some safe money. The policies present a better opportunity than the conventional ways to store safe capital and diversify out of risky things. But the reason you're never going to use it is because you didn't start it with the intention of achieving things with the policy necessarily. That's really a hallmark characteristic of the saver stage of life. There really is no intentionality. It's kind of getting your feet wet, saving a little money on the side. It's very similar to having an emergency fund, really it is, or a little safe spot of your financial pool. There's not a lot of intention there. There's just, hey, money's got to sit someplace. And this sounds Like a great place for a little bucket of my money to sit. There's very rarely ever intentionality. It is true that this is what I call the objective stage, because I really do believe that policies really are, if you do the research, they are truly an objective li better alternative than typical banking transactions. So essentially all you're doing in the saver stage is saying, I'm going to get rid of anything that's not money. I need to pay for my monthly expenses. All of this safe excess that normally would be built up in some sort of cash or cash equivalent place. I'm going to move it into policies because I expect to receive something better there. And it's very true. And so this is kind of the starter, this is the objective thing. This is really what I think everybody in Canada and the United States should get on board to do is at least to start saving their money, their liquid safe portion into policies. As you transition from stage one into stage two, there's a couple of things that are going to happen in stage two we call the capital builder stage. And in this case we're not just going to move a little bit of our safe savings, we're not just going to move kind of our emergency fund and have just a low level of liquidity. Here in this stage is when you start to redirect cash flow that used to go someplace else. You start to redirect cash flow to pay for policy premiums and start funding a larger system. As you start to commit to a higher stage and commit more money into funding your bank, the obvious thing that will end up occurring is you will find yourself using your policy more often. Some people in the saver stage, they really haven't committed to very much of their financial life into policies, but they think that IBC is this awesome thing. So they try to force themselves to use policies to go do things, and so they take policy loans to go do things. But they also have all this other money that's sitting around maybe in banks or in, in other liquid places and cash flows coming in that they're not contributing to policies. And so they, they're the ones who end up asking questions like why would I finance my car using a policy loan when I actually have the cash to buy the car sitting in, you know, an account over here or something like that. These are the questions that get asked by people in the saver stage. And they think that they should use their policy, go do something, because there's something magical about it. But in the reality is if they were to borrow money to buy the car. They'll pretty much just being paying policy loan interest to the insurance company in exchange for a higher, you know, cash balance someplace else. Every transaction that you can do within the invented banking framework doesn't always make sense for you, depending on what stage of commitment you've decided to put yourself in. So in the capital builder stage, it's like the step up from the saver where you start to redirect money maybe that used to be saved to buy cars in a bank account. That money is now paying premiums into your policy. In stage two, you add, not only are you going to put more capital in compared to your capacity to put money in, but you start to add intentionality to the mix. It's not just a place to save some money just in case or to have the safe pool that is a wise decision for your life in general. But you start to add intentionality and say, I'm going to put more money into this policy so that I can do whatever else it is. So you redirect cash flow that could have been in your regular life and you start to add intentionality and start paying more premiums. So a lot of times that's the key hallmark of this stage. And oftentimes in the capital builder stage, it is true. You're doing more personal things with your policy to some degree maybe. So those are things like buying cars, you know, making down payments on a new house, doing home remodels, maybe, you know, funding your kids education. In other words, all these things that are relatively large ticket items that you normally would have to set money aside to do, you're going to end up doing inside the stage. We can also throw in like paying down debt if we wanted to. That's, that's a pretty hallmark characteristic of people in the capital builder stage. What they're going to do if they have any debt that they don't want, and maybe one day they'll have some capital in there that they'll use to make an investment. But for the most part, the capital builder folks, it is more of the high capital things that you normally would set money aside for. That's not exactly emergency fund money, but money that's set aside for, to pay for something. You're going to direct cash flow into policies to be able to fund that. Of course, as you move out of stage two into stage three, as you can tell, all we're doing is committing to higher levels of infinite banking. And as you commit to higher levels of infinite banking, there's a couple of Things that are going to happen. But of course, one of them is by default, you will end up using your system, your policies more often. As we go down the line, we increase levels of intentionality, we increase the total level of your cash flow going into policies before they're deployed. And thus we're going to end up using policies more often in the entrepreneur stage. The reason why we called it the entrepreneur stage had nothing to do with whether you had to be an entrepreneur to get into the stage or not. The entrepreneur stage was, was designed mainly because we like to think of stage three as you truly buying into becoming your own bank. You're truly treating your banking system like a business. It's no longer just a saving strategy. It's no longer a nice place to build capital to pay for the larger expenses of life. It is you committing to a level of saying, I want to be in the banking business. And the hallmark characteristic of the entrepreneur stage is that every dollar of free cash flow is going into premium, is going into your policies. Let's say you make $200,000 a year and you, you have expenses, you have taxes, you have charitable giving, but you have some, of course, some money left over because you live on less than you make. And maybe that's 40 or $50,000 a year of leftover capital. That has to do something. In that framework, all of that free cash flow would be going into policies through premium. Whether it's base premium or paid up addition writer or whatever it is, it would go into policies first and then you would deploy that cash flow into the various investments and large capital expenditures of your life. In the entrepreneur stage, you're essentially saying, I don't want any of my true free cash flow to go into banks. I want it all to go in through my own banking system because I'm in the banking business as well, and I want to be as profitable in that business as I possibly can be in this stage. Of course, what's going to end up happening is that you will use your policy very often. Now, is there anything magic about using your policy often? Like in other words, all we're trying to describe here is that the people who it makes logical sense to use their policies often are the people who have a higher and higher amount of their total cash flow going into policies first. That's all there is. So as you go to the saver end of the spectrum, you will rarely use your policy not because it doesn't make sense for anyone to use their policy, but because it doesn't make sense for you to use your policy because you already have all these other cash flows. But entrepreneur stage is the one that's fully defined as, hey, I want my banking business to be as big as possible. I'm going to treat it like a business. I'm going to put all of the money I possibly can into it first, which is going to then require me by default to use my policy to fund the various things of life that are not just a part of my regular lifestyle. So this means that every investment that you make from here on out will be funded from your policy. Why is that? Why would every investment that you make be funded from your policy in entrepreneur stage? Well, that's because there is no money elsewhere to fund investments. You have put it all into your own banking system already. It's already all there. So of course we're going to fund every investment from the policy. We have no other choice. We got into the banking business, we're going to of course use our bank because we don't have money elsewhere to do it. And every large capital purchase is going to come from your policies in this stage. Now, the only thing of course that we haven't really added in in stage three is anything that's recurring, that's more of a lifestyle expense to some degree. So in stage three, we really have a true banking business at hand. It's not just a saving strategy, it's not just like being able to fund our kids education strategy like we would bump it up. Now it's a true banking business when we branch into stage four, when we graduate into stage four. Now this is where things get a little bit complicated. First off, by the way, you could ask a question like, well, Nate, if all of your free cash flow is already going in to policy premiums in stage three, what else do we have left for stage four? It doesn't exactly make sense even in stage three to start borrowing money to pay for your grocery bill. It doesn't make sense yet because we haven't transitioned what we normally would have spent on the grocery bill into the policies to then deploy it. So if all. So essentially, if I borrow money from my policy to pay for the groceries, what am I going to do with the cash that I haven't yet committed to my policy yet that is there to pay groceries, because that's what I have money to pay groceries already. So if I borrow from my policy to pay for my grocery bill, but what am I going to do with that money? And if I haven't committed it to premium, then I'm Just going to borrow money, to borrow money, essentially, is what's going to happen. So in the lifestyle stages where it gets complex, not everybody, by the way, should even go into the stage. This is when you start to redirect cash flow and that you normally would spend. So this is whenever you start to redirect cash flow that would normally be spent. And the most common couple of items for this are the larger lifestyle expenses that most of us have, which would be things like, you know, for me, it's definitely charitable giving, things like income taxes and various other taxes, these big expenses that we are going to pay with money that normally we just pay cash for. We're going to start to redirect the cash flow that's normally spent on those items into policies before we spend it, by paying premiums, by adding to it. But here's what I want you to understand. This is why it's so complex. Let's say you have $50,000 of income tax, and so you want to increase your total policy premiums across your system, maybe adding a new one, maybe dumping in extra PUAs, whatever it is to you at the time. You want to add in an extra $50,000 to your policy premium system so that you can, you know, you're redirecting that cash flow so that you can borrow 50,000 to pay for your tax bill. If you can follow my train of thought here, what's going to end up occurring is if you already have all of your free cash flow going into premiums, and then you add this on to it, so you're paying an additional 50 grand above your cash flow into premiums, and then you're going to borrow $50,000 out to pay the tax. Logical conclusion is, technically speaking, you don't have another $50,000 to repay the policy loan that you just took out to pay the income tax, because you actually committed to paying an additional 50 grand, at least for a period of time, into a policy premium and then borrowed the 50 out to pay the tax. So here's what's going to end up naturally occurring pretty much almost exclusively in the lifestyle stage. You are going to create what we call a strategic loan balance. And the way we define a strategic loan balance is typically this is whenever you're borrowing money to do something within your IBC system, but you don't have a direct repayment schedule that's built up involving that loan balance. So of course, if I'm going to borrow money from my policies to purchase a vehicle, I'm going to set myself back a Loan repayment term and sequence that makes sense for a car loan to myself. But in the lifestyle stage, there's going to be some period of time where you actually are creating a loan balance, but you don't have a specific plan to repay it. This is why, by the way, stage four is not for everybody, because that can make some people uncomfortable and it can actually not make sense for some people to enter stage four, because really what happens is whenever you have a strategic loan balance, normally it makes sense to do that if you're expecting in the future some sort of windfall event to take place. So most of the time when someone enters stage four, they start to redirect cash flow that's normally spent on typically heavier ticket items like charitable giving, income tax, but it could be even something so low as a grocery bill. And that money is sent into policy premiums first, and then it's borrowed out to go fund these various things of life. But there's no additional cash flow really left over to start paying back loans. So you create a strategic loan balance. But the reason why it would make sense to you is that if you expect a windfall event in the future, you have actually now prepared a place for it to go. But normally speaking, the people that it makes sense to do that in are those that would have some sort of windfall event expected in the future, whether that's an inheritance, whether that's sales of an asset or a sale of a house or something like that, where they say, yeah, Nate, I actually want the to build this strategic loan balance up for the next few years, because I'm expecting something to occur down the line and I'd love to be able to just dump all that money back into my policies. And I can do that by paying back my strategic loan balance. Of course, in stage four, this is a very complex stage and it's very, very strategic. Those are the hallmarks, of course, of the stage. This is something you don't do on your own. This is something you definitely have an advisor with you to help you manage this to where it doesn't get out of hand, what you want out of it will determine what stage you should enter in. And there's no right or wrong answer there. If you don't want to get into the banking business the way that infinite banking is really supposed to be done, then maybe the saver stage of the capital stage will work for you. But if you are someone who loves to get their hands on money and achieve things with money, then of course you're going to Want to commit to a high level in the stages. And by the way, the stages themselves are not like a dollar amount that puts you in. What will put you in the various stages is how much of your capacity you are choosing to put in. Technically speaking, we all have an objective total financial capacity called your gross income. And if you want to take some expenses out of that, your free cash flow at least. What I see happen all the time is that when most people learn about infinite banking, they envision life somewhere in stage three or stage four. When, when they really get saturated with infinite banking, they really believe that IBC in their mind, they see it occurring at the entrepreneur lifestyle stage. They see themselves using policies all the time, making investments. They see all these wonderful things occurring in their mind. That's what they see. However, I as an advisor see them committing to a level of premium and that actually puts them in a saver or capital builder stage. The question is why? Why does people so often see infinite banking and actually buy into the vision of IBC as a stage three or stage four practitioner, but they actually commit, they actually start funding policies that would actually put them objectively in stage one or stage two? And I believe there is a line that goes right down here in between stage two and three. And that line is called, that indicates the fear of premium. What typically keeps people stuck in stage one and two? First off, by the way, I don't even know if I should use the word stuck. It's perfectly fine to live your life there if that's what you want. But who I'm talking to is the people that really want ibc, their banking policies to become the default financial tool for the transactions of their life. That's what happens in stage three and stage four. So they want that, but yet they find themselves, you know, essentially at a level that's in stage one and two. What is that? It's because there's a fear premium. Somewhere along the way there is a fear where people will end up saying to themselves, you know, I don't want to over commit, I don't want to lose my shirt in this. Somehow, some way, there's most of these, there's typically a fear of the premium. Maybe they still see the premium as a payment or an obligation a lot of time those fears are not founded on reality. So that's of course why you need an advisor to be able to ask questions, to be able to talk to you. You need a coach in this. And in this we're going to discuss an actual example of a hypothetical person and really help you see with clarity what does each stage look like. How much money is this guy, in this hypothetical scenario putting into the policies? How big are they getting based on the stage of commitment they want to make? We're going to assume this individual is making $500,000 a year of income, that there are lifestyle expenses of $150,000, that he's paying about $150,000 a year in taxes in all of the tax forms that exist, and that he gives about $50,000 a year in charitable giving, you know, 10%, like a tithe amount of that would be given to charity. And so that's 500,000 of income. There's 150 grand of expenses, 150 of taxes, that's 350,000 to charity. So that's a total of 350 that was kind of spent of the 500,000, and that leaves him $150,000 left over. This is the term we've been using, by the way, called free cash flow. That really what the vast majority of those stages were based on, really, how much of this free cash flow are you going to commit to building your bank? If you commit a small amount, you'll be in an earlier stage. If you commit all of it, you're in stage three, or maybe even getting into stage four. So this is that number $150,000 that this person has that's going to be doing something. It's going to be working someplace. And so I just kind of created some a hypothetical arrangement of what the this person is doing before he learns about infinite banking. And then what it's going to look like as he starts to transition in the various stages to infinite banking. So in this scenario, he's got $150,000 a year of cash flow to work with, and we're going to assume that he has money up here saved up in an emergency fund. And I believe personally that everybody should really have at least about six months of their lifestyle expenses saved up in an emergency fund. So, so if he's got $150,000 of expenses, he really should have at least $75,000 liquid in his emergency fund. So we're going to assume he already has that money saved up, but we're also going to assume that he's adding about $10,000 a year of from his 150 pool into that emergency fund. We're also going to assume of this money that there's 40 grand a year going into kind of your more conventional retirement program, which will leave him with $100,000 left over. That's got to go do something else. Of course, look for a guy who's making $500,000, the question should be, okay, here we have a guy, what should he do when he's going to get into infinite banking? Remember, I believe that everybody should do infinite banking. The question is not whether it would benefit you. The question is often, well, at what scale does it make sense for me based on these parameters, to do it, based on what I want to do? So you really want to start with the end in mind. And so what I'm going to do is kind of give an example of what the different stages would look like if you were to implement infinite banking at those stages. And so we have here at the saver stage, all, remember, in the saver stage, all we really do. And I go back to the part one, remember, all we're really going to do in the saver stage is move money into the policy and to replace that emergency fund that he already had that was just sitting in someone else's bank doing nothing, essentially. And then that $10,000 a year of cash flow that, that our hypothetical person had that was going into that bucket. All we're going to do is transition that money that's already going into his safe pool of money into a policy. So, of course, what that means is we're going to direct $10,000 a year of cash flow into our policy as a placeholder for the saver stage. But he also has, remember, the $75,000 that's already saved up inside of his emergency fund. So we're also going to move that money in. But here in the United States, we have some, some rules. I assume Canada does as well. Here in the U.S. it's called the modified endowment contract, or MEC guidelines. The MEC rules, which kind of limit us from just writing one check necessarily to fund 75 grand a year. There may be ways that we could, we could work it out, but it's pretty common if you have a lump sum to dump into a policy like that, to spread it out over a little period of time. And so in this case, in our little example here, we're going to move in ten grand a year from our cash flow, but we're also going to move in the emergency fund over a few years. So if we had 75 grand of emergency fund money in our model, we're going to move it in over four years, we're going to move it in 20 grand a year for years one, two and three. So that's 60 grand of it in years one, two and three. And that leaves us $15,000 a year left over to dump in, in year four. So we're going to move in 10 grand a year plus we're going to start pulling money over the next three, four years into the policy from the emergency fund. And essentially this I just built kind of a basic example of what this would typically look like. And so right here we have the $10,000 a year of cash flow. That's the money that he was already putting into the safe place. And then 20 grand for years one through three from the emergency fund and 15,000 in year four that came from the emergency fund money. And so that's what you'll see happening in here. You'll see we have 30 grand a year for the first three years. And the last year we moved in 25,000 because we only had 15 from the emergency fund left to pull in that year. And then from then on, he only contributed the $10,000 a year of cash flow after that point. And so what you'll see here, I mean, this is just your basic policy, essentially what he's saying to himself is that in the saver stages at least, I may not understand everything there is to know about infinite banking just yet. I may not understand how I could fund everything in my, in my business and in my life through the policies. But at least I can comprehend for at least now that for my safe money, this is going to generate a better result for me and my family than if I did it inside of a bank. And that's actually why I added this column over here. This was just kind of a placeholder for what the money would have looked like in the bank account just sitting there. And I let it earn some interest. In this case, it was one and a half percent after tax, which would probably be closer to maybe about 2 1/2% pre tax rate, which right now I know is a little bit low. But I also built this, this whole scenario in December of 2022. Really, bank saving rates have gone up, but, but insurance companies are also increasing their dividends now that we're in the higher interest rate environment. So, but essentially what you'll notice, and this is why I call this the objective stage, is because you take a look at this individual who's, who does this until age 65, let's say, and he has $1,225,000 of cash value and $2.2 million of death benefits sitting in this little safe savings bucket, whereas his bank of Savings account had $589,000 in at that time. So we're talking about $635,000 of additional gains to his family, tax free, not even including, of course, the extra death benefit that existed throughout that entire time and will continue to be there for his family. On top of which, you'll just look at the growth of the policy right now on this last year that we have, you know, on the sheet, and you'll see that the policy growth was $70,000. That's 1,155,000 to 1,000,225. That's 70,000. Of course, he put in 10 grand. But so in other words, if you take out the 10 that he put in, that means he made a $60,000 profit in this one year. And you compare that to the bank account, you compare that he had a $19,000 increase, and he also put in $10,000. So that means he actually only made a $9,000 profit. And so you're sitting here looking at the two, you're like, man, of course, this is why we say policies really do provide the best, most objective place to store safe, liquid capital. And we believe, I mean, everybody should at least be doing this, at least. But this might not be enough for some people, of course, but some people would take a look at this guy and they would say, you know, we have all of this cash flow going into retirement programs, going into other investments. You know, we have a total of 150 grand, and we only were moving in 10 grand a year from this policy. By the way, one thing really quick, some people that I would meet, Maybe they're making 200 grand, 300 grand, 400 grand a year, and they look at putting in some money to a policy, and they really do see it as a payment. It comes off really quickly. In other words, you can tell really fast if someone wants to commit to doing IBC the way it was designed to be done, which is really stage three, stage four, or whether they just want a safe place to store money. But the biggest issue is when you commit to a low level, a lower stage, but think you should be able to do all the fun things that people are doing on stage three and stage four and have it make sense. Okay, so you have a guy who's making 500 grand and it wants to start a 30 grand a year policy, moving some money from his emergency fund, a little bit of cash flow, and he comes to me and says, I heard you talking about funding your charitable giving and making money on that. I Mean, how should I. Should I take a policy loan to fund my charitable giving? No, this ain't magic. There's nothing magical about taking a policy loan just because you have a policy. Now. The reality is you have to add intention. Money has to be put in on purpose in advance to be used for things. So the biggest issue we're trying to solve with the stage mentality is just simply understanding that if you have cash flows that you're not choosing to go into ibc, you're just going to end up using the policies less. And that's okay, but just be okay with that. Be okay with that yourself too, because you'll get into trouble when you think you got to do all these fun things and cool things, but you haven't redirected the money yet. The idea would be, of course other people are going to look at this and say, well, yeah, I mean, I've got. I can move my emergency fund, but yeah, I really don't want to be in retirement programs stuffing a whole bunch of money in there. I'd rather transition that money into that cash flow and fund my policies with it so I can go open up new opportunities to myself. Or maybe they take a big chunk of the money that they were using that was funding other investments in their life and they start funding policies with that money. And so they essentially start to see some of the vision, see some of the picture. They start to increase their commitment level. And of course, when you increase your commitment level, you're going to start redirecting more cash flows. Maybe this person says, yeah, we're going to need to buy a home soon or we're going to upgrade our home. I'm going to save. We're saving money for that. We're building capital up for that. And said, all we're saying in the capital builder stage is that you're going to start redirecting cash flow that used to be doing some other things by itself, invested, saved, whatever it is, and you're going to start using policies in order to do those things. So in that case, we just kind of put. We could have chose anything we wanted to, but we're going to say he's going to start contributing not ten grand a year. That was just the saver basic stage. Now he's going to contribute $80,000 a year of his $150,000 of free cash flow towards policies that's going to include the $10,000 of money that used to go in the emergency fund, plus another 70,000 of cash flow that used to Fill either maybe the retirement program bucket or you know, the other investment, slash lifestyle, slash car purchase, whatever it is, bucket of additional capital. In every scenario, they kind of graduate from one to another. So it makes sense in any scenario to move your emergency fund money in as well. So if he wanted to get started in the capital builder stage, he would not only be contributing that cash flow, but of course we'd be doing the same thing with the emergency fund he would be doing. You know, he'd move in 20 grand a year for three years and $15,000 in the fourth year to move out his $75,000 emergency fund. So we're going to do that in every scenario. And so what this looks like in reality when we actually go pull this up in stage two is we're going to end up funding, funding a total of a hundred thousand dollars a year for the first three years in premium. Of course, how did we get that money? Once again, we'd said that we get, we had 80,000 of cash flow that was going in and we're moving our emergency fund just like we did the first time, where it's 20k for years one through three and 15,000 for year four, which you can see happening in the premium column. So now we simply have a much larger policy to work from. And I hope you can start to tell that compared to the entry level saver stage, a much larger bulk of this person's overall financial capacity is going to be housed inside of their banking system, which means that by default, they're going to use their policies more often. It has nothing to do with whether it's magical to borrow money to buy a car or not. It has to do with the saver guy still has money to buy cars sitting in the car account that he already had. He's going to buy cars the same way. He hasn't redirected the cash flow. Well, this guy, maybe he did redirect the cash. So it starts to make sense for him to do it. And of course, as we go down the line, we're putting more money, numbers get bigger. So if you can remember, the saver guy had 1.2 million of cash value at age 65. This individual has 7 1/2 million dollars of cash value at the same time frame. Of course, he's putting quite a bit more money, obviously, and also a $13 million. The reality is it was going to be a bit too long and complicated to start to throw in random concepts of transactions that this person would have been using their policies to do over a Lifetime. But just know that the more you use it, if you treat it correctly, the numbers will only get bigger, not smaller. And so, you know, if the saver guy had 1.2 million, and now, of course, we've just created a much larger bank, we've deployed way more capital into the policy, and it's going to generate a lot more cash value if I erase this and kind of do that same scenario. If you look at what the policy is growing by at this time, $440,000 growth in one year. Given 80,000 of that was from our own cash flow. So if you subtract out what you put in, that means that our banking system produced for us a $360,000 profit in this one year. It's almost like I'm doing a disservice everyone. Jason, as well, just by simply leaving it up to your imagination, what you would have ended up accomplishing in your life if you'd had this in place.

Well, Nelson said that you don't have to be rich to get into the banking business. And second, that your money must reside somewhere. And what better place to have it reside than here? And so we have clients that start their journey with as little as $100 per month. If they're putting policies in place on children, grandchildren, great grandchildren, and we have clients who are putting in six figures every month because that is their capital capacity, that they just have more money that must reside somewhere. If you have money and need the use of money, regardless of the amount, it must reside somewhere. This is a process. And so when we show these different scenarios with varying degrees of income, varying degrees of free cash flow, you have to utilize your imagination by just replacing the figures that Nate is outlining with your own 100%. And that's where you begin. Everybody must begin somewhere. But you can't learn how to swim unless you get in the pool.

Exactly right. The idea is this. If you make $1 million a year, or if you make $40,000 a year, either way, there is going to be four stages for you. There's going to be a saver stage based on how much you want to commit to. There's going to be a capital builder stage, an entrepreneur stage, and a lifestyle stage. And it's going to be the same concept. Doesn't matter how big or small the numbers are. On the flip side. So in stage two, we just committed a higher level of cash flow course than stage one. In stage three is really when you've committed to building the banking business. So remember, if you are an individual who makes $50,000 a year, just take a zero off the end of it. If I make 500,000 of income and I have, I pay my expenses, I pay taxes, I pay for charitable giving, and I have $150,000 left. And I want to get into the banking business, and I want all of my capital to flow into policies before it's deployed. That's what stage three represents. That's what I've been doing for years. I'm sure that's what Jason's doing. Like, we don't deploy money to things that hasn't gone through our policies into our own banking system first. And that's the hallmark of stage three.

The other point that's really important, worth noting, is that when we again, remind ourselves that our money must reside somewhere when we spend less than what we make. So if we. From a lifestyle perspective, because the infinite banking concept is a lifestyle, it's not a financial plan. And so as you are moving money through, if you are making $50,000 a year, which you're not really making, you're just handling it. And after tax, you have 40,000 a year to spend, and you only spend 30 of that 40. The entire 40,000 must flow through the books of someone's bank.

Yep.

And so you're building a warehouse to store capital, and from that place of storage, you're living your lifestyle.

That's banking. Infinite banking is all about banking. It has nothing to do with investing money of any kind. It has to do with how money is flowing through. Jason, we use your example of 50,000 and then having $10,000 of taxes and $30,000 of lifestyle and netting kind of $10,000 of leftover what I would call free cash flow. Essentially, what infinite banking describes in the four stages describes is what are you going to do with all 10? Are you going to move it all into policies that would put you into stage three? Are you going to move a chunk of it in 6,7000 and have some money left over? Then you might be stage two. Are you going to move just kind of a safe savings amount that put you in stage one? Are you going to start committing even higher levels of money into policies and start going after some of the lifestyle expenses or taxes, in which case you enter into stage four. But in stage three by itself, all really doing is saying, I'm going to commit to this banking business thing and I'm going to, you know, take my free cash flow that I have available to me and fund policies with that money. So in that, in that case, you know, in this case, it's going to be, you know, in my own life, I built this similar to what I'm, you know, going through. So that's $150,000 a year of. Of my free cash flow. I'm saying that that's all I have. I'm going to dump it all in because I want every investment that I make in the future to be funded from my own bank. When you decide to have the capital go into your policy first, before it's deployed, you actually start to make money in two ways. You start to make money as a bank, and then, of course, if you're investing money, you're making money in whatever you chose to invest that money into. And so you make money in two seats. We're not used to that. We're so used to money doing one thing, one job. Oftentimes, what can keep people in stage one or two instead of moving into stage three is they think, well, I don't want to put all the money into policies because I want to invest in real estate and I want to go get into business and my, you know, I want to reinvest money to grow the business, and I want to. And the list goes on of things that we think we want to do. What we're saying is, yeah, that's all great, but whose bank is going to be the capital warehouse for those things to take place? Is it going to be yours that's funding everything, or is it going to be Wells Fargo or whatever it is funding all of these transactions for you based on you saving money in their checking accounts and using their tools? So the entrepreneur stage is really just simply saying, I'm committing to essentially opening a banking business and I'm going to have all of my cash flow go into my policies before it's deployed. And of course, as always, we also, if we're going to own a banking business, why would we leave our emergency fund kind of cash money sitting around in somebody else's bank? Let's go ahead and move that money in as well. And so that's really what you'd find happening in stage three. We're moving in $150,000 a year, which is all of our, quote, unquote, free cash flow in this little simplified hypothetical example. And we're also going to move in our emergency fund money in this case, Remember, we're going to fund $150,000 of our cash flow. That's all of this person's free cash flow. And then $20,000 for years one through three and 15,000 from year for year four. That's all coming from just kind of taking some cash out of their emergency fund to max out policy. And you'll see that corresponding here in these early years of, of the policy. And then it situates down at 150,000 a year after that. If you have cash flow that's going to be going somewhere, why not throw it into here and build this asset and then leverage this asset to go do the things you're going to do anyway. And so of course, at stage three, you know, the numbers obviously just keep getting bigger and bigger. Of course, you know, now our cash value is up to $13 million of cash value and $24 million of death benefit. And you compare that to the individual who was the saver strategy, who was just going to save money into a policy and move on. Of course he had, you know, $1 million in this little hypothetical scenario for himself after, at age 65 and after 35 years, of course, as we pay more money and we're going to receive more benefit. But all the while here, we certainly hope money is being used to practice banking. This isn't just some place to store money like it would be with a safer strategy. This is of course money being used. But in the lifestyle stage, if you can recall, it's a level up from the entrepreneur stage. So you're, you have already committed to IBC at a high level. You're funding all of your free cash flow into polic. It's when you enter the lifestyle stage is where you actually start to redirect cash flow that normally would be spent on something. Maybe it's just the tax bill of $10,000 a year, something that's already being spent. We start to redirect into a policy and fund it from a policy, it will end up creating a strategic loan balance. So in this case, we don't fund $150,000 of cash flow every year. He's actually going to put in 200,000 of cash flow, which of course you could say, well, Nate, if his, if his free cash was 150 and he's going to put in 200,000 of cash flow, where does all that money come from? Well, essentially in this case, all we're saying is let's just target the charitable giving item. So this person is receiving $50,000 a year of income that he's also giving to a charity throughout the year. So the cash is there. It's of course earmarked to go to charitable giving. Well, what if we earmarked it for policy premium first and then use the policy to fund the charitable giving. So in this case, he puts in 200,000 a year. And of course, we're going to add in our emergency fund money just like every year to keep things scaling up. But we are going to add transactions into this example. So in this one, we know we have to borrow some money out by design. It's actually a part of the funding design. We already know we're going to be borrowing money out to fund charitable giving. And so that's what we're going to do. Now in this, I said, if you can remember, if we take the $50,000 of cash flow that's going to charitable giving and we actually use that to fund the policy premium, we actually don't have another magical $50,000 of cash flow to repay that loan throughout the year because we're already committed that to premium as is. So this is going to create what we call a strategic loan balance that normally speaking, whenever we add that type of, you know, complex arrangement in somebody's life, there normally is some sort of exit strategy with a windfall. So in stage, this would be an example of a stage for infinite banking for this person's capacity. He'll have, you know, policy premiums coming into the policy of, in this case, 200,000 of his cash flow, plus the emergency fund money that we've always been adding in to the mix as well, which was, I always like to reiterate, 20,000 for years one through three and 15,000 in year four to move in the $75,000 of emergency fund money that he had. And you can see this money accumulating for these few years here. But there's going to be some more complexity in this scenario what we start to do. Because we redirected the charitable giving money of $50,000, he's going to have to start borrowing money each year to give to charity. And so we do that for four years. So we're paying premiums and we're actually taking policy loans to pay for charitable giving, which is building up a loan balance over time that we really don't have the cash flow right now to pay for. That's the definition of a strategic loan balance. The way we define it is that, yeah, I'm going to borrow to create a loan balance, but I don't really have the means to repay right now, but I know it's likely I will, due to some various events, a loan balance will accrue. And we essentially just assume that in around year 10 or so, that loan balance is going to get paid off with a windfall event. But the idea for you is that in stage four, it will almost always end up some sort of strategic loan amounts. In this scenario, he's having to borrow money from the, from the policies to give to the charity because he still has a commitment to do that and he doesn't have money to repay the loan balance until a windfall occurs. And we just kind of chose a hypothetical event in year 10 for the windfall to come in. You'll also notice just by the way, that after a few years of time, after the four years of time, we actually reverted back to the stage three style free cash flow funding of the premium. The truth is he could continue to borrow money and keep paying that higher premium for as long as he wanted to. But for most people, they kind of have a target amount that they want to create in a strategic loan balance. So we just kind of chose $200,000 for this example. So that's why you'll see us reverting back to the 150,000 after that point as time goes on. Of course, the policy, there's more contributed to it. So instead of having 13,700,000 versus 14,500, so we added about $800,000 of additional capital here through the strategic loan balance model. By adding in the lifestyle, even though we had to take some policy loans back, we repaid him. But we essentially created a much larger system overall and we could have done the same thing with his income taxes. It really would depend on how big of a strategic loan balance he wanted to end up creating. The truth of the matter is one of these stages will fit almost everybody on the planet. Infinite banking is such a powerful thing. Whether it's stage one or stage four, what you should determine for yourself and what will end up helping you get put into knowing how you want to do IBC will be really determined by what you want to accomplish with it. The bigger your goals for your banking system, the higher level of commitment it requires to get there. But once again, remember, there's no objective number here that puts you in a stage. Also remember that what you choose to use your policies to do also is not what puts you into these different categories. What really does put you into these categories is how much of your cash flow that goes into your life are you going to put into policies first and then deploy it versus the cash flow. You're just going to kind of do the way you're already paying for things, financing things, funding things. And policies are going to kind of be on the side.

Policy made $800,000, but the value was 13 million. If 13 million made 10%, then wouldn't.

It be better than the $800,000 plus no premium payment was needed. It kind of goes back to the essence of what we didn't really get to discuss, but actually the essence of what infinite banking is all about, which is If I have 13 million of cash value and it's growing by $800,000 or whatever it is at the time, in reality, I'm sure Jason, you could chime in and do this too. I don't leave all of my cash value sitting in the policy. I'm using it all the time to create value, to make investments, to do these various things. So it is true that there are investments in the world that are awesome to get involved in and you happen to have $13 million sitting at your disposal to go take advantage of any of those that you would want. It is true that if you had a, an investment that was giving you 10%, I would love to move my $13 million into that.

Yeah, I would. Just bring back to Nelson's book titled becoming your own banker. So you haven't read this book. You have an opportunity. It's a 92 page read. It'll take you a little less than an afternoon to get through it. And in the book, so Nelson Nash, who developed, pioneered this process, he talks about on page 69 in his book, the chapter is titled but I can get a higher rate of return. And Nelson describes what Nate just outlined to say that if you have ready access capital, because what's super important for people to understand, you don't already. Cash value is not money. Cash value is the net present value of the future payment of a death benefit. The way that you leverage cash value is by borrowing against it without interrupting any of its growth. So you have 13 million in cash value. You can borrow against that cash value to go participate in that investment that is generating 10%. If Nate participated in the investment by doing what I just shared and you just had 13 million residing somewhere and you earned that 10%, that $1,300,000, Nate gets both. Nate gets the $800,000 increase in total cash value and he also gets the 1.3 million return on the investment. The difference is where all of Nate's money is going to flow to and who that money's going to be put to work for and for how long. So that's the advantage. That's one of the fundamental understandings of the infinite banking concept. It's never going to be about addressing the yield of an investment because the infinite banking concept is a process. Nate's describing the tool where the capital flows to which is dividend paying whole life insurance contracts, ideally a system of contracts.

That's the whole point of the four stages conversation. It's up to us as teachers to show the world that technically speaking, if you deploy your cash flow into policies first and then maneuver money out of the policy from that vantage, you'll end up receiving more benefit. I was simply saying, hey, there is a world in which you are just at least saving money to policies, in which case you have your 150,000 of free cash flow. That's building wealth in whatever way you want to. That is an option. I'm just saying that in this example, stage three and stage four would show of an IBCR would be that person has decided to not make a $13 million investment from a bank account, but he has decided in advance that he's going to store capital in policies so that he can make the $13 million investment from his banking system and benefit in more than one way.

Absolutely. And this is how you finance the things that you need throughout your lifetime, which can certainly include investments.

If this is to replace your bank, then how do you make your payments via cash?

Nelson wasn't encouraging people to become an institution. So we've heard people use that language, and we may have used it at times throughout the years as well, where we say become your own bank, be your own bank. That's not what Nelson intended. He wanted you to become your own banker. He wanted you to become all four characters in the financial play. The depositor, the borrower, the banker, the bank owner. He didn't add a fifth being an institution in becoming a bank. And so you are still going to need the convenience of debit. You are still going to need to transact and utilize a bank as an intermediary to facilitate those transactions. The matter becomes whose capital are you using for that? And the answer is the life insurance company's capital. Your money is flowing back into the life insurance company two ways. Premium and loan repayment. That's how your money is flowing back into the life insurance company, which is the entity that you co own. So think of the life insurance company correctly as an entity that you co own, which that entity is also in the lending business. You co own the lender. So how much of your financial energy do you want flowing to an institution that lends capital to captive customers? As much as you can, but you're still going to need to swipe the debit card, buy the food, take your family out to dinner. But you're utilizing the life insurance company's.

Money to do that.

At stage four, you're not utilizing your own capital. Your own capital is flowing back to the life insurance company in the form of premium and in the form of loan repayment.

Jason, let me ask you a question. Yeah, Please. When you got started in infinite banking, what stage do you think you were ready to commit at the day you heard it?

Saving.

You were a saver style. Yeah, I agree.

So In July of 2008, I was first introduced to this process, but I was not introduced to Nelson's book or to Nelson until 2011. So when I was first exposed to this concept and we began to implement it in our lives, our objective was to get rid of the conventional bank that held a mortgage on our principal residence as rapidly as possible. Our first policies were nowhere near the size of our family banking system. Today, we will pay 1,056,000 in premium this year. In our very first year, the total premium in our system was just shy of 17,000. And so if you understand that this is meant to be achieved gradually and incrementally over a period of many years, Nelson said it will take the average person 20, 20 years to become the banker, to take control of 100% of the banking function as it relates to your needs, your family's needs, your business needs. We got it done in 13 because we were rather aggressive in building our system. We had our own family objectives to take control of this function called banking as it relates to the needs of our family.

Just because you are in a certain stage at one point in life doesn't mean you'll actually stay there in the future. In other words, if you did not expand your system, as you increase your success in life and in business, you also have to expand your banking system accordingly. So you could be somebody who is stage three, stage four, high commitment, doing really well, and then you could start. You could go from making 100 grand a year to 500 grand a year. And if you don't expand the system, you'll find yourself actually paying the same amount of premium that used to put you in stage three or stage four. Now, as in you're back to stage one and you have all this other cash flow that you have, for whatever reason, not decided to go in. The size just doesn't matter. Of course, it needs to be scalable to who you are and what you're actually doing in life. So a million dollars is big to you, Jason, but there's people running this earth that would be their saver stage.

Absolutely. Agreed. And, you know, Nelson said that there's only one pool of money in the world, and the fact that you only control a portion of it is incidental. The money's flowing through your hands, not into your hands. That's the distinction. You need to get connected with the right person on my team. You can schedule a time to get connected with the right person on my team right now. It is true that all of the money that you are working so hard to earn is flowing right through your hands, not into it. I talk to people all the time. How much money do you make? Oh, I make 50,000 a year. No, you don't. You handle 50,000 a year. You don't make 50,000 a year. You're not making anything. You're working hard to earn it. And all you're doing is handling it. Someone else is getting all of it. How soon do you want to change that?