Becoming my own bank!?

This is one of the most under-represented financial tools I’ve come across, and when it is discussed it’s the most misunderstood… so we’ve got our work cut out for this issue of T+P 😅 

My aim is to be simple enough to understand the concept at a glance, but not so simple that I misrepresent how it works. I’ll overview the: What (and What NOT), How, and Why… then leave you with further resources so you can do your own research.

To kick us off, here’s the “hook”…

What if you had a bank account that gave you uninterrupted compound interest, so you could compound cash indefinitely, even when spent?

WHAT

• 🏦 Private Family Banking (PFB) is one available phrase used to describe the tactic of using a Whole Life Insurance Policy as the “Perfect Piggy Bank.”

  • As you pay premiums into the plan you build up cash value that can be used whenever you want, and used immediately, unlike other Whole Life policies.

    • Since it’s Life Insurance, it also immediately comes with a Death Benefit to be paid out to your beneficiaries, and other extras like a Chronic Illness Rider.

• 📈 The cash value grows at around 5% APY (beating most every checking/savings account out there).

  • As this cash compounds, it grows beyond what you contribute, and when you access that money it’s tax free.

• 💰 When you use the money from your policy, you still earn interest on the ENTIRE cash value of the policy!

WHAT IT’S NOT

• 🤓 Not an investment strategy. It’s a capital management strategy!

  • This is the biggest “dig” against PFB… people don’t understand that you’re not trying to beat investment returns with it, you’re instead using it to give your dollars double jobs... more on that later.

• 👾 Not an infinite money glitch. You can only use what you’ve put in (plus what has compounded).

  • So if you have $30K available to be used (which BTW is money you’ve put in the “piggy bank”), and you use $15K… then you only have $15K left in your “piggy bank” for now.

  • But what’s sweet is that you’ll earn interest on the whole $30K, even if you’ve used $15K of your available cash value.

• 💳 Not a way to completely de-bank. You’ll still need a standard checking account, etc.

  • There are 100% PFB “Maxies” who run all their liquid cash through PFB policies, but even if you do that you’ll still need a checking account to do all the normal things (paycheck, bills, send premium charges to your PFB, etc.).

HOW

• 🪙 Mechanics: As a Whole Life Insurance policy, the value of the policy is built up by the cash that is paid by you in premiums (plus additional policy riders) and interest gained (dividends paid to policy holders from the insurance company).

  • Dividends are sourced from insurance company profits, paid to you like a “shareholder” (includes the company’s usage of bonds, gold, and other low volatility investments so they can “guarantee” a return).

  • PFB is done ONLY with Life Insurance Companies who have existed for 100+ years, have paid dividends each year, and show other metrics of strength and integrity. So you know you’re in safe hands!

• 🤝🏼 When you use money from your policy, you are not “pulling the money out,” you are collateralizing the cash value of your policy and using money from the insurance company (this is why your whole sum continues to earn interest).

  • The insurance company lets you do this on demand, and these loans do carry compounding loan interest (5% AVG).

  • When you take out a loan you are “depleting your piggy bank” (merely a conventional way of understanding why you then have less cash available to be used). But when you pay back the loan, the principle payment goes right back into the cash value of your policy, “filling your piggy bank” to be used again.

  • You could choose to never pay this loan back! If you’re being wise, the interest of the loan will never outpace the interest of your cash value.

  • The insurance company is okay with this because they know they will STILL get their money back eventually… How? Because they can guarantee that you will die one day… So they will take your outstanding loan balance from your Death Benefit, before the rest goes to your beneficiaries.

WHY

• 📈 The main principle with PFB: Never interrupt compounding interest!

  • So think about it this way: Would you rather, put $100K down on a home and have it spent… or use your PFB to put the $100K down and KEEP EARNING COMPOUND INTEREST on $100K?

• 💸 Debt Consolidation: For those who have debt from various sources, and enough cash value, you could swallow the collective debt and reduce your interest to 5-7%.

  • Plus you then know that the “principle” paid each month is technically going BACK TO YOU, unlocking cash value to be used again in your “piggy bank.”

• 💪🏼 Give your dollars multiple jobs! You can have your cash compounding and at work to secure more capital.

  • Use your PFB for Stocks

  • Use your PFB for Startup Funds

  • Use your PFB for Business Loans

  • Use your PFB for Private Lending

  • NOTE: You’ll want to put your money to work doing something that outpaces the Loan Interest. There’s a video in the section below that runs through the math on this for determining ROI.

• 🛟 Life Insurance: Most growing families need life insurance to hedge against tragedy or use as a standard inheritance. Might as well have it be a PFB policy that serves multiple purposes!

🌟 TOP PICKS & BEHIND THE SCENES

The Banker’s Secret to Permanent Family Wealth - All PFB essentials in 100 pages.

Rich Dad Poor Dad - The framework presented on assets, liabilities, and debt usage was really helpful as a foundation for me to understand concepts connected to PFB.

Choose FI - The standard tome on financial independence. Good stats and tips.

Why the Stock Market Goes Up - My #1 book recommendation for those who are just starting to learn how to invest.

Private Family Banking™

Contact Chuck if you are considering opening up your own PFB!

I unfortunately don’t have any affiliate perks with Private Family Banking™, but I am a policy holder! If you end up talking to Chuck directly, let him know you heard about him from me… maybe one day he’ll sponsor Toil+Profit 😄

PFB Specific Videos

ℹ️ Product links in this newsletter are affiliate links. If you make a purchase through these links, I may earn a small commission at no extra cost to you.

⚠️ The information provided here is for educational and informational purposes only and should not be considered financial advice. I am not a financial advisor, and any decisions made based on this information are solely your responsibility. Always consult with a qualified financial professional before making any investment or financial decisions.

In all toil there is profit, but mere talk tends only to poverty - Proverbs 14:23