When it comes to making purchases, there are three ways people “finance” what they buy. Most people don’t think of every purchase as a form of financing, but every time you spend money, you’re making a decision about how to use your resources. Let’s break down the three methods: saving, borrowing, and using the Infinite Banking Concept (IBC).
1. Saving to Pay for Something
When you save up to buy something, like a $1,000 expense, you’re essentially setting aside money over time until you have enough to make the purchase outright. This method has a major downside called the “lost opportunity cost.” Every dollar you save and then spend could have been invested elsewhere, earning interest or compounding over time. Once you spend that $1,000, it’s gone, and the potential growth of that money is lost forever. Even though you’re not paying interest to a lender, you are missing out on the opportunity to grow your wealth.
Example: You save $1,000 over a year to buy a new gadget. When you make the purchase, you now have the gadget but zero dollars left. You also miss out on the interest or investment growth that $1,000 could have earned during that year. In essence, the opportunity to grow your wealth is gone.
2. Borrowing to Pay for Something
The second method is to take out a loan to make the purchase. For instance, you could take a loan for $1,000 and pay it back over time with interest. While this allows you to have what you need right away, it also means you’re paying more than $1,000 due to the interest charged by the lender. This interest goes to the bank or financial institution, not back to you. You’re paying for the privilege of using someone else’s money, which reduces your overall financial growth.
Example: You take out a loan for $1,000 with a 10% interest rate. Over the loan term, you end up paying $1,100 in total. You have the item you needed, but you’ve lost $100 in interest to the lender, which could have been used to grow your wealth instead.
3. Financing with Infinite Banking Concept (IBC)
The third method is using the Infinite Banking Concept (IBC). With IBC, you use a Dividend-Paying Participating Whole Life Insurance Policy to finance your purchases. Instead of borrowing from a bank or depleting your savings, you borrow against the cash value of your policy. You pay back the policy loan with interest, but the key difference is that you’re paying the interest to yourself and your system, not to a third party. This means you never lose the opportunity cost of the money, and it continues to grow within the policy.
Example: You take a policy loan for $1,000 from your IBC policy at 5% interest. You pay back $1,050 over time. However, since you’re paying interest to your own system, the $50 interest remains within your financial ecosystem. Furthermore, the original $1,000 in your policy continues to earn dividends and grow, giving you even more financial leverage in the future.
In the end, every purchase you make involves a decision about how to finance it. Whether you’re saving up, borrowing from a lender, or using IBC, each method has a different impact on your long-term financial growth. Saving leads to lost opportunity costs, borrowing sends your money to someone else, but with IBC, you finance everything through your own system, ensuring that your money keeps working for you. It’s a powerful way to take control of your financial future, keeping the growth and interest in your own hands.
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