Does it seem strange to you that after some of the biggest banks failed in history, it’s suddenly over? Where can you save money where it’s safer than a bank, pays better, and avoids taxes?
In this episode, Chris Miles shares where he stores the bulk of his savings, and the best way for you to create your own.
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Unbank Yourself
Welcome to a show that’s for you, those who work so hard for your money, and are ready for your money to start working harder for you right now. You want that freedom of cashflow today, not 30 or 40 years from now. You want it right now so you can live that life that you love with those that you love. We know it’s not just about getting rich. It’s about living a rich life because, as you are blessed financially, you now, as a Rippler, have a greater capacity to bless the lives of those around you.
That is why I’m here today. Thank you for reading and sharing this episode with other people, as well as sharing this channel. I appreciate that. If you haven’t done so already, go subscribe to our YouTube channel, whether it’s the Money Ripples channel or the Money Ripples Podcast channel. If you’re reading this right now, you probably already are, so thank you so much for reading and being a part of this today.
Let me ask you something. Do you trust the banks right now? Are you worried about what’s going to happen, especially when we had some of these bank failures several months ago and now it just seems quiet? It seems like the crisis is over. It’s been averted. Has it really, though? Do we trust to keep our money there in that bank? How do we know that FDIC, which has less than 2% of reserves, saved up for us to protect our money, yet we trust in that FDIC like we trust that’s going to work out?
Granted I’m a Generation X-er. We don’t trust anybody. Still, it makes you wonder. Can we really trust the banks or is there a better solution to that? Is there something we can do better than the banks or saving in the banks? Those of you who have been following my channel long enough probably think, “I might have a few ideas of what Chris might be talking about here.” You bet you. I’m going to talk about infinite banking or a way to un-bank yourself.
How do we get away from banks in a place where we have better protection, you have better guarantees of our money, better returns, and better tax advantages? It sounds great. It almost sounds too good to be true, but the truth is it can be just as liquid yet you can make better returns and have better protection.
What do I mean by this? We’re talking about life insurance. I’m not talking about typical term life insurance where it’s just death insurance. I’m talking about using whole life insurance, specifically. I want to make sure that we’re talking about the very specific tool or vehicle that could be helping you here because there are other types of insurance out there beyond term insurance. There’s even universal life insurance, whether it’s variable or indexed. There are two different versions. Each of those is tied to markets, and as a result, especially with increasing costs over time, could lead to you losing money in those.
Whole life is the only one that has a guarantee that it’s always going to increase that tax-free supercharged savings account that they have, that pays you more than point nothing percent like you get at the bank. I know even lately, bank returns have gotten better, which is good. Some people might even critique life insurance companies saying, “Yes, but our life insurance company’s getting better because their rates are still about the same.” They are, but here’s the thing you got to know.
They have a lag effect. They don’t churn as quickly as what you see bank accounts doing. Meaning, that even if interest rates start going back down on banks, interest rates on life insurance will follow more slowly. They’ll possibly continue to keep rising or at least stay the same even when rates are falling with banks. If they fall only short term, it doesn’t matter. It’s more evened out with life insurance.
I want to talk about using specifically the type of method that we use, which we refer to as max ROI infinite banking, using this as a tax-free supercharged savings account, not the typical whole life insurance policy that you buy from the usual agents where you’re buying a high cost, low cash, really low returning type of policy. That’s not what we’re talking about here. We’re talking about a policy that has a minimal death benefit but allows you to dump in a bunch of cash. That’s what we’re talking about here doing. I want to talk about that strategy, how I’m using it in my own life, and what I’m teaching a lot of my clients to do right now.
The truth is, there is a little bit of a strategy or a tactic to it that can get you to pay for this with almost no money out of pocket per se, at least not ruining your budget. That’s the one problem I see out there. Many times people say, “All this is so expensive. It’s got to come out of my budget.” It is, especially if it’s done wrong. Let me talk about this strategy of how I would use it today. I’m not talking about using this to buy real estate. I’m not talking about using it to buy cars or houses or even doing investments in general. That’s a great strategy. That’s the infinite banking strategy you often hear me talk about, but I want to talk about this more from a place of defense.
One of the most important things right now in this market today is to be liquid. You need to have liquid cash available. This is more important than ever because we just heard people in 2022 going to 2023 saying, “Don’t have cash on hand. You’ll lose to inflation.” For that reason, you should do the opposite. You should have more cash on hand now. This doesn’t mean you don’t invest. I want to be very clear on that. You can still invest, but it might mean that you don’t just keep your six months of emergency reserves on the side. You might keep more than that. You might keep twelve months of emergency reserves. You might even increase that even beyond that point. You might even keep more just for opportunities coming along.
You need to have liquid cash in today’s market. If you don’t have cash on hand, you will lose to inflation. Click To TweetI have several clients that right now say, “I’ve got several hundred thousand to deploy, but maybe I’m going to keep $100,000 or $200,000 on the sidelines.” The problem is this. If you keep that money in the bank, there are a few concerns. One is that the bank might fail. There still might be a big failure happening with the banks. For them to say it only happened to three large banks, and although we know there are some other banks that were affected as well, to say that the crisis is over seems to me a little bit too good to be true. I don’t know if that’s the way it is for you, but it seems a little weird that some very powerful strong banks fail, and then all of a sudden everything’s great.
There are people who will say this, “If I go for the big banks, the banks that are buying those banks like Chase Bank and things like that, maybe I should be safe.” Maybe that’s the case, and maybe that’s not. If we learn anything from the last financial crisis, Warren Buffett had to step in to save Bank of America. That was a big bank. It was too large to fail. If you remember that term from the 2008 crisis, “Too large to fail,” I don’t believe that. I really don’t.
Is your risk less because you get into large banks? Yes, they are. You then run into the other problem, which is that usually with these larger banks, you’re going to be paid a much lower return on your savings. On top of that, you get taxed on that money. Even if you say, “I pulled out a 1% rate of return,” if you’re in about a 30% tax bracket, now, you’ve only made about a 0.7% return.
If I use my whole life insurance, I’m making more. I’m usually making at least about 4% tax-free cash-on-cash. That’s net after fees and everything else. I know the dividends are closer to 5.5% to 6% today and they’re predicted to go up in 2024 and or 2025. That being said, I like to stay very conservative with that and say that’s a net 4% tax-free return. That’s not too shabby when you think about that. For you to do that with a savings account, you’d usually have to earn at least about a 6% rate on your savings account, which you’re not going to do.
The one thing with life insurance companies is that they’re safer. They have what’s called reinsurance. Reinsurance companies are insurance companies that insure insurance companies. Reinsurance companies back up insurance companies much like the FDIC, but instead of only having a small percentage, they have a much larger percentage.
Life insurance companies are safer than bakes because they have reinsurance. Click To TweetOne thing that banks do that insurance companies can put banks at higher risk is that banks can loan more than what they have in savings and what they have from you as depositors. Where we’re putting our money in the bank, banks can still lend out more money than what you give them, even more money than they have in their own possession. They are legally allowed to do that. That’s called fractional reserve banking. They can lend out a large percentage at least usually 6 to 10 times whatever they have in actual cash. If you think about that, say for example you had $100,000 of assets. That means you can be able to borrow at least $600,000 to $1 million and just use it for whatever you want.
Some of you might say, “That’s like buying a house.” It is. It can very well be like buying a house. For you to be able to say, “I have every asset possible, and then I can go and leverage it, even a car. I buy a car for $50,000, but I can then get a loan for $300,000,” no, that’s never going to happen. You can never buy it for more than its value, even with homes.
I can’t say never. I won’t say that because there are times when banks will make exceptions go a little bit higher for newly purchased cars. For that example, you can go a little bit higher, but you will pay for it. When it comes to home, usually, you can’t go over 100%. You can’t go over the praise value. That’s the cap. Even then, they want you to put a down payment below the praise value so that there’s equity in it. Banks can do the opposite. They can go majorly in debt. That’s risky if they do some high-risk lending, if they’re lending to people with bad credit scores, or even just in general. If the markets tend to tank for whatever reason, that could affect their portfolio and affect their health. It might even affect them to be able to give you access to your own money.
That’s not a problem when it comes to insurance companies. They can only use the money they have. They cannot over-leverage. They can’t borrow money they don’t have. They literally can only use the cash they have in their account to invest with and do the things with. When they invest, they usually invest in very conservative types of things. A very tiny percentage they might do into something might be more speculative, like buying into a business like a tech company or something like that. Usually, that’s a very small percentage, if at all, when they invest that kind of money.
Understand that when it comes to their own portfolios, insurance companies are much safer than banks. On top of that, they have reinsurance companies that do step in in case they happen to fail. To give you some context, in history, in the Great Depression, at that period of time, about 2/3 of banks failed. There were over 35,000 banks and only 13,000 survived at the end of the Great Depression. It was massive. While insurance companies, only a few of them failed during that period of time.
Granted there probably wasn’t 39,000 or 35,000 insurance companies, I get that. Percentage-wise, there was a drastic difference because of that very reason. They couldn’t over-leverage. Banks can. Still, even after the depression, even after what’s gone on with the Great Recession and they’ve put more guardrails in place to help banks out, they’re not infallible. Insurance companies have always had those guardrails in place and they’ve been very conservative. The great thing is they still pay you more money than the bank will. That is the key here, is that you can still store your money and make it work for you.
Let me talk about the strategy of how that works. People say, “Should I just put all my money in there?” No, because I still use banks for this one purpose. If I need money today, I have money in the bank. If I need to pull out money right away or within the next 24 hours, I have money in the bank. If I want to get the money within a week, the vast majority of my money, I can keep it in the life insurance where I know I’m making tax-free higher rates of return than in the bank.
What I do is this. I’m going to take two different scenarios for you here because you might be in a different scenario. From my scenario, what I did is I had my cash reserves building up in my savings account, and I have a lot of clients like this. They might say, “My expenses are $5,000 a month.” They know that in six months, they need at least $30,000. I said, “Let’s do this. You’ll still keep saving money that you’re putting into your savings account. You’ll still keep building that up, but for the next two years, you’re going to take $15,000 a year from your bank account to fund and put into your policy.”
By year two, even though those are the most expensive years, because whole life insurance specifically is front-loaded with their costs, their costs are more expensive in the beginning and then they get cheap as time goes on. It’s the opposite of term insurance. The term gets more expensive over time. Whole life gets cheaper over time.
Those first two years, you do $15,000 a year. It did that. That’s $30,000. Remember, those next two years, say you’re saving $1,000 a month, you still have $24,000 for the next year. The great thing is, after those first two years, if you paid in $15,000 a year or $30,000 total for over those two years, you would likely have right around at least $25,000 in cash in there. You still have the savings there. You’re just transferring your savings from one account to a better-returning account.
How many of you guys have done that where you’ve moved money from a bank to an online savings account that pays you a better return? If you are on an email list, you probably have even got emails where it said, “Check out this particular savings account. It pays you a better return than most of the banks you’re going to be dealing with.” That same thing is happening. People are just moving their money over and putting it inside of life insurance where it’s safer and making a better return.
In my case, my wife wanted to increase that number a lot. When I mentioned twelve months of reserves, she’s like, “I want liberally twelve months of reserves.” We said, “Let’s set the number at $300,000.” I didn’t want all $300,000 sitting in a bank earning, even with our current credit union, paying 0.1%. $300,000 earning 0.1% means I make $300 a year. I get taxed on $300 a year, so maybe I’ll walk away with $200 in interest.
Let’s say $250,000 of that is earmarked for my life insurance, which is what I did, we started investing our money in cash in our bank account and then opened up the money that was in our life insurance to be just sitting there as cash reserves. Now, if I’m earning conservatively 4%, that’s $10,000 a year I’m earning tax-free. I get to keep $10,000 of earnings a year instead of, like I said before, on the full amount, only making maybe $200 after tax. Drastic difference, major change.
For many of you, when we talk about Wealth Accelerator Academy and things to learn and strategy-wise of how to free and increase cashflow, this one strategy could do that and make a lot of money for you. You may not be saving $300,000. It might be $50,000, great. What if $40,000 of the $50,000, you kept $10,000 in the bank, $40,000 inside of this? Don’t do it all at once. I’ll explain that a bit, but $40,000, still, if it’s earning 4%, that’s $1,600 a year tax-free versus earning, on $40,000, $40 a year. I was like, “Do I want $1,600 a year or do I want $40 a year taxable so I walk away with $30, maybe?” That’s the big difference, guys.
As I mentioned, I don’t encourage people to try to dump all their money in one year. Why? Like I said, the most expensive expenses in the policies are in those first few years. I like to have people spread it out a little bit and break it up. I have some clients who might be paying into this and you might be in this category where you’re starting from almost zero in savings. Maybe you have very little. By the way, I recommend having at least in the bank $5,000 to $10,000 before even using this strategy. If you got $5,000 or $10,000 and that’s all you have, just keep using the bank in the meantime. Use it, build it up, and focus on that.
Let’s just say you have only $10,000 in the bank right now. You might use some of that money to fund a policy in the first year, but then keep adding money to your bank account over time. By the way, a key tip here, you save on costs if you pay annually into your policy versus monthly. You can do monthly, but it will cost you a little bit more on the fee side. We generally try to encourage people to reduce the cost so that they get a better RO. That’s why we say max ROI infinite banking. That’s why we usually encourage paying annually. You can be flexible with it. You can design however you want. If you’re starting with just $10,000, we’re not going to dump all $10,000 right into the policy.
Say you’re only adding $10,000 a year, I might say, “Let’s do a policy with a max of only $6,000 to $8,000 a year.” There’s still a little extra going in. By the way, if your maximum is $8,000 a year, usually the minimum is right around $1,500, give or take, per year. It could be $1,500 to $2,000 a year typically if you have an $8,000 max. You’re only required to put in that smaller amount.
If you’re already saving $1,000 a month or $10,000 a year, $800 a month, usually after two months of savings, you can at least pay the minimum on that policy. Again, just put it into your savings account, then once a year, take that dump and throw it in. Knowing that you’re not required to put in that $8,000 a year, $10,000 a year, $20,000, $100,000 a year, whatever it might be, you can do that. There’s a technique to it. You can always talk to our people. You can always go to MoneyRipples.com and ask us, “How do I do this?”
We can help you design and customize it for your situation. I’ll say this. Whatever somebody’s putting away per year, outside of what they already have in savings, a lot of times we’ll say, “Do a little bit less than that.” If you’re putting away $30,000 a year into savings, even with 401(k)s and everything else, maybe we only do about $20,000 or $25,000 a year max into those policies, knowing that you’ll have to put in about $5,000 a year. Those are the kinds of strategies that we do.
I want you to put this in your brain here. Imagine if you’ve already got savings built up and you already have an emergency fund. If you want to diversify that emergency fund to pay you more money, start moving that over, paying that over the next few years or so depending on what works best for your situation, moving that over, all the meanwhile you’re still saving it for that savings account and replenishing it and putting more in, which could also go in there too and diversify later.
Once I get beyond that point, even with my situation, $250,000 in the life assurance, $50,000 in the bank, in my case, anything above that $250,000 that’s now on my life insurance, free game to invest right now. I can invest the other part, too, but we’re trying to protect those reserves just to be extra careful right now with the economy because you don’t know what can happen. That’s the stuff that we’re talking about doing here. You can still keep building up above and beyond that and using that money to invest and then you get that double-dip effect that we talk about so often.
That’s my advice to you. If you have questions about how that works in your situation, go to MoneyRipples.com. Ask us. We can help run some numbers of people on our team and help you do that. I’m telling you that this is one of the best ways you can get your money, not just safe and sitting, but you can un-bank yourself. You can get away from these banks, get away from that risk, and get it to work for you today. Make it a wonderful prosperous week. We’ll see you later.
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