Page 6 - Moran Financial

The Infinite Banking Concept

But what if you could actually keep more money in your jeans by

borrowing against an asset that you own and control? This
process can be accomplished using many different methods, but

the most common would be the equity in your home or leveraging
against an investment.

Picture this: You own a $30,000 saving account earning 4%
interest. You want to withdraw the money to buy a car. The

advisor tells you it’s better to get a loan for $30,000 and pay 6%
interest. You can repay the loan over the next 5 years.

Should you withdraw the savings, or take the loan?

After five years your 4% savings grew to $36,507. You earned
$6,507 in interest. Your total 6% loan repayment was $34,666.

Your loan cost you $4,666 in interest. The result is you gained
$1,841 by taking the loan!*

One of the most common misconceptions is that if you pay
interest at say 6%, and earn interest at 4%, that the 6% paid

would be a larger number. It’s not.

The 4% earned will result in more money in your pocket than the

6% interest paid over the same time period.

The reason for this is that you pay interest on a declining balance
owing each month, and earn interest on a compounding balance.
Let that sink in.

While this is only part of the story, it is an important piece of
information that the Infinite Banking Concept utilizes.

*The only way this example wouldn’t work is if you could find a new savings account that was guaranteed to pay 4%
on monthly payments for 5 years. Then, in five years, you would be slightly ahead by withdrawing the savings instead
of taking the loan, and making your repayments to the new savings. Good luck! I haven’t found one of these yet.
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