DEBT DIAGNOSIS

Let’s use a car pur­chase as an exam­ple of

the Lost Oppor­tu­nity Cost of spend­ing cash.

Let’s begin with assum­ing you have $20,000 saved up in a sav­ings account and you want to buy a car. You do not want to pay the bank all that inter­est and you have been told that CASH is KING so you always try to pay for every­thing you pur­chase with cash. What hap­pens as soon as you remove that $20,000 from your sav­ings account? It no longer earns you any inter­est right? So over say 40 years, as you can see below, you could be loos­ing $96,020.41 of inter­est gain, less taxes of course. That is the Lost Oppor­tu­nity Cost of pay­ing with Cash.

If you instead leave that $20,000 in the sav­ings account earn­ing 4% and bor­row from your local lender the $20,000 at 6% over 5 years, the num­bers will look like the illus­tra­tion below depicts. You will pay to the lender bank $3,199.35 of inter­est charges as well as all the bor­rowed prin­ci­pal back.

But just out of curios­ity, how much would you have earned if you only kept the $20,000 in your sav­ings account, earn­ing 4%, over the same 5 year time period that you also bor­rowed the $20,000 to pur­chase the car? See the illus­tra­tion below and notice you actu­ally earned more inter­est in the same time frame, with an inter­est rate that is 2% less than you paid.

The dif­fer­ence between the earned $4,333.06 and the paid $3,199.35 = a profit of $1,133.71. So by pay­ing $20,000 cash for the car and sav­ing the $3,199.35 of inter­est charges, the lost oppor­tu­nity of earn­ing $4,333.06 of inter­est means there was a lost oppor­tu­nity of earn­ing a profit of $1,133.71 and own­ing the car as well. And that is while earn­ing 2% less than the 6% charged for the financ­ing of that $20,000 while the $20,000 was earn­ing 4% com­pound inter­est. If, after the 5 years, you now take that earn­ings of $1,133.71 and keep it in a sav­ings account earn­ing 6% for 40 years, you will end up with $12,276.34. So that is the lost oppor­tu­nity cost of spend­ing the cash instead of financ­ing the car, if you only take into con­sid­er­a­tion the dif­fer­ence in the inter­est paid and inter­est earned for the one car pur­chase, over 5 years. The actual loss over a life­time though is much greater, $96,000 over 40 years. Either way, you end up ahead if you finance for a lit­tle higher per­cent­age while keep­ing your prin­ci­pal in a sav­ings account earn­ing a lit­tle less of a percentage.

There are always three play­ers in the bank­ing game though. The Saver. The Bor­rower and The Banker.

All are equally impor­tant and necessary.

Most peo­ple only ever expe­ri­ence two of these bank­ing players.

Can you imag­ine being the Saver, the Bor­rower AND the Bank Owner of your own Pri­vate Bank­ing System?

What would that look like if?

YOU are the SAVER of the $20,000 earn­ing $4,333.06.

YOU are the BORROWER of the $20,000 pay­ing $3,199.35, to yourself.

AND, YOU are the BANK OWNER that lends the bor­rower, YOU, the $20,000 and earns $3,199.35 inter­est, but also pays the saver, YOU, $4,333.06.

There is only one finan­cial vehi­cle in this coun­try that is designed so you can be all three play­ers in your own pri­vate bank­ing sys­tem. It is a specif­i­cally designed div­i­dend pay­ing, whole life insur­ance pol­icy, with a mutual company.

 

Let’s take a look at the illus­tra­tion below depict­ing a loan from your own pri­vate bank­ing sys­tem. Notice you buy death ben­e­fit straight away with the money you are cap­i­tal­iz­ing your new bank­ing busi­ness with. How­ever, the cost of the insur­ance decreases over time and costs noth­ing within a short period of time. One still has to pay pre­mium, how­ever the cash value that pre­mium gen­er­ates each annual pay­ment equals more than the pre­mium at the third year.

Also, taxes have to be taken into con­sid­er­a­tion. Any inter­est earn­ings on prin­ci­pal in an ordi­nary sav­ings account will be taxed. The growth within your own bank­ing sys­tem can be accessed tax free though, if with­drawn cor­rectly. This tax advan­tage is a huge wealth accu­mu­la­tion benefit.

First of all you must cap­i­tal­ize your bank first, as is depicted in this illus­tra­tion. You can actu­ally start bor­row­ing within 2 weeks but in this illus­tra­tion it shows you cap­i­tal­ized your bank for seven years before tak­ing a loan also in the sev­enth year.

Notice in the fifth year of the loan repay­ment sched­ule you can­not fit the entire loan repay­ment of $4,640 to make up the total of $23,199.36, back into your bank.

There is an over­age of $1,121.00, the dif­fer­ence between $4,640 — $3519 = $1,121. That is the dif­fer­ence between the inter­est that the com­pany (you partly own) hold­ing your pol­icy bank charged, and what your reg­u­lar lender bank would have charged. So you came out ahead by $1,121.00 by being a part owner in your pri­vate bank­ing sys­tem with other like minded individuals.

By being a bor­rower from your own bank­ing sys­tem and by being a saver in your same bank­ing sys­tem as well, you have also added the bonus of a death ben­e­fit to the entire sce­nario. Notice that even though you bor­rowed $20,000 you still earned guar­an­teed growth and non-guaranteed div­i­dends each year. That’s because when you bor­row from a mutual insur­ance com­pany that you own a div­i­dend pay­ing whole life insur­ance pol­icy with, you actu­ally bor­row from the company’s gen­eral fund and your death ben­e­fit is used as col­lat­eral. This means that the money you bor­rowed is still grow­ing. The growth is reduced a lit­tle to make the shared prof­its fair to all, but it is still growing.

You actu­ally have the oppor­tu­nity to fill out a short new under­writ­ing form to be able to include the extra $1,211 as addi­tional pol­icy pre­mium if you wish. This would allow you to pur­chase more Paid-Up-Additional insur­ance which in turn would gen­er­ate more cash value to build your cap­i­tal for more bor­row­ing power. Doing this also increases your guar­an­teed and non-guaranteed div­i­dend returns. Or you can use it to help pay for next years premium.

 

If you could find a place to keep all your money and know that in the future you would be able to get every penny of it and it’s growth back, tax free, would you object to putting your money into such a place?

Your own pri­va­tized bank­ing sys­tem gives you the abil­ity to do just that.

Call me today and ask me any ques­tions you may have about own­ing a your own pri­vate bank­ing sys­tem where you become your own banker. Jen­nifer Hansen 845 – 649-7487. Jennifer@DebtDiagnosis. com