I want to talk about how decisions you make today can be used to become your own bank. My definition of becoming your own bank is being able to access cash without having the bank involved, utilizing favorable borrowing terms, paying interest back to yourself, and investing on your own terms.
Benefits of becoming your own Bank
- No need to worry about your credit score when accessing money
- The loan does not report on your credit
- You pay YOURSELF back interest. That's right, the interest you pay goes back into your account
- Ability to quickly access large amounts of capital
- Creates a stress free lifestyle
How to become your own bank
Three vehicles that you can use to become your own bank are:
- 401Ks
- Self Directed IRAs
- Cash Value Life Insurance Policies
401Ks
Most people have this misconception that you are not able to touch the money in your 401K until you are 65 years old. This is completely false. You can access the money in your 401K by taking a 401K loan. 401K loans are a better alternative to withdrawing money from your 401K for three reasons.
1) You do not have to pay taxes on this money
2) You will not face any penalties
3) As you pay the loan back your money will be invested back into the stock market. You don’t want to completely remove your stock exposure by withdrawing the money.
If you want to see a visualization and learn how money grows long term in the stock market check out my best selling book the Financial Starter Kit
Self Directed IRAs
Self Directed IRAs can be used to invest into a variety of investments such as real estate, precious metals, notes, private stock, private equity, and many other kinds of investments. The IRS only prohibits investments of life insurance policies, collectibles, specific precious metals (gold, silver, platinum, and palladium are allowed), and alcoholic beverages. There are no limitations put on you for when you can use your Self Directed IRA funds to invest into other assets.
Self Directed IRAs are also tax advantaged because you can choose a Traditional IRA or a Roth IRA. You are able to pass these benefits down to your beneficiaries to inherit your account when you pass away. If you choose a Roth IRA for your self directed IRA the income generated from the IRA is tax-free. This is a major benefit that even your beneficiaries will be able to take advantage of.
Cash Value Life Insurance
Cash value life insurance policies are permanent life insurance policies that have a cash value that you can borrow against or withdraw tax free and have a death benefit. The cash value of your life insurance policy is counted towards your net worth (look up a personal finance statement if you don’t believe me) and wealthy people have been using them for 50+ years to create wealth.
There are a few different types of cash value life insurance policies such as Whole Life Insurance, Index Universal Life Insurance, Universal Life Insurance, and any other permanent life insurance type with a cash value. The difference between Whole life and IUL is that Whole Life policies guarantee benefits with a fixed premium (monthly cost) and minimum growth. IUL policies have flexible payments with cash accumulation pegged to the performance of a stock index fund. When setting up a permanent life insurance strategy you must make sure that the policy is set up to where you are not paying too many fees to the agent and that it is structured to fit your investment strategy.
I look at permanent life insurance as a way to build wealth and become my own bank. I wouldn’t suggest anyone to invest too heavily into one of these policies and you should make sure you have term life insurance, an emergency fund, and other stock investments first.
Utilizing permanent life insurance as an investment strategy is something you do after you have built a solid financial foundation. If you don’t know how to do that check out my best selling book Financial Starter Kit.
I will also be hosting a #FinanceFridays featuring Ron Caruthers (@roncaruthers), wealth planning professional who has been featured in Forbes. We will discuss permanent life insurance, pros and cons, what to look out for, and any other information on November 20th at 12:30PM PST/ 2:30PM CST/ 3:30PM EST on my Instagram account @capital.sb. Sign up at textbeez.com if you want a reminder and to submit questions.
Proper planning and smart investing
When it comes to becoming your own bank proper planning and a long term investment strategy is key. You want to make sure that you are looking at these investments from a long term view with at least a 10 year investment horizon.
For a deeper understanding of generational wealth check out my favorite wealth planning book by James E. Hughes Jr. called Family Wealth--Keeping It in the Family: How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations here on Amazon . I’d get a used copy. They are charging alot for the new book now for some reason.
A few examples of how you can utilize your personal bank
- Walt Disney used a cash value life insurance policy to fund his company Disney.
- Money that is in cash value life insurance policies cannot be taken from you in a judgement if you are sued.
- You can fund your kids college or kids dreams once they turn 18 without relying on a bank.
- You can use your 401k loan to purchase investments (real estate, private equity, etc)
- Generate tax free income through investments that your Self Directed Roth IRA owns
"Reverse engineer your life. Live a life of abundance",
- Beez
If you enjoy my blog and are interested in learning how to make six figures and working with me 1 on 1. I will also be hosting a free webinar teaching people my keys to helping you have your first 100K year and create passive income. Sign up here to get more information
Check out #FinanceFridays replays
