Create Your Own Bank

Mike Dillard explains it really well!  Check it out:

What does it mean to "Create your own Bank"?

First of all, it goes by many names...they are all relating to the same product: dividend-paying whole life insurance

Those who are avid Dave Ramsey followers might shudder, "whole life" is bad!  "term" is the only way to go...  bear with me, and I think you'll see the value in this strategy as I did.

Here are some of the names it goes by:

  • Create your own bank
  • Becoming your own banker
  • Cash flow banking
  • Infinite banking
  • Bank on yourself

There are a lot of references to "bank" and "banking" and "banker."  But the vehicle for creating your own bank is insurance.  How's that make sense?

One of the benefits of this concept is the policy loan: taking a loan against the cash value of the whole life policy AND the paid-up additions.  It's "banking on yourself" because instead of going to a bank and getting money and paying the bank the interest, you can take a loan against your life insurance cash value, and pay the interest through non-direct recognition to yourself.  More on non-direct recognition later.  It's one of the key aspects of this concept.


A typical bank mortgage

If you purchase a house for $100,000 at the current average interest rate of 3.92% for 30 years, the total cost including interest will be $170,213. So the bank makes $70,213 off of the $100,000 they loaned. Over 30 years, they made a 70% return or 2.33% annually.  The annual return for the bank is less than the 3.92% because the money is being paid back, so the 3.92% interest rate being paid by the borrower is on less and less principle.

​2.33% ???  That's not too great.  Inflation is 3.2%  But the bank is re-loaning that money out each time you make a payment.

Let's do a compound interest calculation on the back end.  The loan payment for the example above would be $473/month.  Annually, the loan payment is $5,676.  Let's say the bank put your loan payments to work at the same interest rate of 2.33%​


How the bank invests the loan payments...more mortgages to other borrowers

The bank takes that $5,676 annual amount and invests it in other mortgages paying them 2.33% and turns those payments into $248,202.33 over 30 years.  If you want to check my math, the compounding interest calculator I used is below:

So now the bank has made $70,213 plus $248,202.33 off the original $100,000 loan.  That's a total of $318,415.33 or 318% return over 30 years.  10.6% return annually.  

Wow!  Banking is a pretty good business!  But where did the $100,000 come from in the first place?  It comes from depositors, people or businesses who have checking/savings accounts.  The bank pays a very small amount of interest to the depositors and then takes the money and makes loans, then takes the loan payments and makes more loans, takes those loan payments and makes more just keeps going.

"Creating your own bank" is a concept that allows someone to capture the interest of their dollars, instead of giving them to the bank.

Who's it for?

​Anyone who wants consistent income, who plans to take loans from banks for houses, cars, starting a business, or purchasing rental properties, someone who wants to build wealth over their lifetime, and not just get rich can't get wealthy quickly.  "Rich" and "wealthy" are different...

As an entrepreneur and an investor, I've learned the biggest threat to my financial independence and my ability to consistantly save and invest well is myself.  The biggest threat to your money can be you!  For more on this, check out Video 5 under Step 1

I like this concept as an entrepreneur because a set amount is set aside monthly into an account that has multiple benefits:

  1. It's automated.  There have been many studies that show that investments do best when left alone.  Constant attention and finagling is expensive (trading fees, closing costs, opportunity cost of time spent...), is time-consuming, and leads to poor returns.  It's best if that set amount is moved from checking to your policy monthly without even thinking about it.  It grows at the 4% guaranteed return rate plus dividends, doesn't lose money if the stock market drops, etc.
  2. You can take loans against the cash value of the account...the best investors using this method use these loans to buy cash-flowing assets: real estate, oil wells, or businesses.  The cash that those assets produce is used to pay back the loan to the policy and build the cash value even more, then bigger loans are taken to buy bigger cash-flowing assets, etc.
  3. Unlike a Roth IRA or 401k, there aren't limits on how much you can set aside, or when you can access the money.
  4. It's for people who think tax rates are going up.  It's an account where the contributions are made post-tax, like a Roth.  The money is not taxed in the future.  So when you're ready to start using it, say during early retirement, you don't have to worry about paying taxes.
  5. You can convert your whole life insurance policy into an annuity at some point in the future and will have a guaranteed income for life.
  6. It is not affected by the ups and downs of the stock market.  It doesn't lose value.
  7. I've chased high returns in the past through stock trading, real estate investing, trying to use debt to grow a business more rapidly.  I lost money every time.  This method won't get you rich quick, but it will build wealth over your lifetime.
Wealth gained hastily will dwindle, but whoever gathers little by little will increase it. - Proverbs 13:11

Is it a scam?

I wondered the same thing.  Here's NerdWallet's opinion:  "No. It’s certainly not for everybody. There are a number of factors that have to be in place for the concept to work well. But it is not a rip-off or scam by a long shot, when properly set up." 

Where can I find out more?

Here are seven sites all basically recommending/selling the "Create your own bank" method to build wealth.

I'm going to combine this concept with the simple investment portfolio to round out my saving/investing plan.

Combining these two ideas will create a unique and powerful portfolio!

To find out more about why I chose the other four categories for investing in, check out the Simple Investment Portfolio

Keeping the Give. Earn. Live. mindset, after giving away the first 10% of your paycheck, you'll "earn" or save/invest the next 10%.  This 10% of your paycheck will be split as follows:

50% goes into dividend-paying whole life insurance policy

12.5% into U.S. Stocks

12.5% into Real Estate

12.5% into Corporate Bonds

12.5% into Gold

I recommend setting up an account with M1 Finance for the Stocks, REITs, Corporate Bonds, and Gold, and setting up a Wealth Maximization Account with Paradigm Life to "create your own bank."  For more details, feel free to contact me.

Check out M1 Finance:

Contact Chad Hanson at Paradigm Life: