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The
simplest way for most people to start capitalizing on the
Infinite Banking Concept is through financing a car. To put
the Infinite Banking Concept into perspective, we will first
look at the three traditional ways to purchase a car. The
three ways are:
To
keep this illustration simple, we have made a few
assumptions. First, we are not taking a down-payment into
consideration. Second, we are not taking any trade-in value
into consideration. Third, we are not factoring in
inflation. Fourth, we are assuming the price of the car
being purchased is $25,000 and that you will buy a new car
every four years for a total of 40 years. Fifth, we assume a
very conservative interest rate of 7.5%. Sixth, we assume
that a savings account would yield 5% return, long term.
Last, we assume that you pay taxes on the income you earn in
a taxable savings account at the same rate of your combined
Federal and State income tax brackets.
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Lease
the Car
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Your
monthly payments are $416 of which $57.56 is
interest based on a typical leasing interest rate of
7.5%. You do this for 40 years leasing a new car
every 4 years.
Total
Cash Paid for the Lease of the Cars =
-
$199,680
Lost
Opportunity Cost =
- $974,674
(in
interest paid)
Total
Cost =
- $1,174,354
You
have the use of 10 cars in 40 years.
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Get
a Bank Loan
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Your
monthly payments are $604 of which $84 is
interest. You do this for 40 years financing a new
car every 4 years.
Total
Cash Paid =
- $289,920
Lost
Opportunity Cost =
- $1,415,055
(in
interest paid)
Total
Cost =
- $1,704,975
You
own 10 cars after 40 years.
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Pay
Cash For Your Car
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You
take $25,000 of of your savings account every 4
years to pay cash for your car doing this for 40
years.
Total
Cash Paid =
- $250,000
Lost
Opportunity Cost =
- $1,446,285
(in
tax paid on taxable savings account)
Total
Cost =
- $1,696,285
You
own 10 cars after 40 years.
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In
all three of these methods of purchasing a car,
you are always LOSING money. Sure, you get 10 cars
in the process; however, you are losing all the
money you have paid in interest or taxes as well
as losing an opportunity to make even more money
with that interest or tax dollars!
The
fourth way, and smartest way, of purchasing a car
is the Infinite Banking Concept.
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The
Infinite Banking Concept Method
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Your
monthly payment is $604 for 40 years, purchasing a
new car every 4 years, the same as if you took a
loan out from the bank. Now when you start a
business there is always a "start-up"
phase, is there not? In this concept you are doing
exactly that, you are building up your own
"bank" so there is a capitalization
phase necessary. In the case of the $25,000 car,
it will take a 5-year start-up period.
After
the fifth year you have enough to withdraw $25,000
and pay cash for your car. Then you continue to
pay the monthly payment of $604 to your own
bank instead of the finance company.
This
is where it takes commitment or this process of
building your wealth will not work. You MUST
continue to pay the $604 a month as if you were
paying it to a bank or financial institution.
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Total
Cash Paid = $289,920, the same as if you financed
your car through a bank, but it's going into YOUR
bank instead of someone else's. This is why it is
listed in the "positive".
It
grows to a Total Value of $573,000 in the 40 years
based on current interest rates.
It
grows with triple compounded interest ...First, you
earn money on the principal you pay. Second, you are
earning money on the interest you would have paid to
a bank. And third, you are earning interest on that
interest!
Because
of the start-up phase of 5 years, you are only
getting the use of 9 cars in the same 40 years.
Isn't that a small price to pay for reclaiming ALL
the interest you would have paid to a bank?
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Comparison:
The Four Ways to Purchase a $25,000 Car
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