馃攳
Velocity Banking vs Infinite Banking - YouTube
Channel: The Money Advantage
[0]
are you looking for the number one best
[2]
financial strategy
[4]
to get the most financial control maybe
[7]
you're weighing
[8]
velocity banking versus infinite banking
[10]
you're trying to figure out what are the
[12]
differences
[13]
and which one should i use now both of
[16]
these concepts are something that
[18]
sound very similar but there's key
[20]
differences that you
[21]
really need to understand in order to be
[23]
able to make this decision
[24]
to the best of your ability now velocity
[27]
banking is a strategy
[28]
of being able to pay down your
[30]
liabilities or your debts as quickly as
[32]
possible proponents of this strategy
[34]
will use a line of credit or a heloc
[38]
to be able to pay down a mortgage as
[41]
quickly as possible some say within five
[44]
to seven years
[45]
some closer to maybe the 10-year mark
[47]
but it's used as a strategy
[48]
to cut down repayment times on debt and
[52]
be able to
[52]
save interest now usually what's
[54]
happening inside of a velocity banking
[56]
strategy
[57]
is you have a home equity line of credit
[60]
that you are paying down
[61]
instead of a mortgage and this strategy
[65]
of funding the heloc and then being able
[68]
to use the heloc as your
[70]
cash banking account is what you then
[73]
use
[73]
to pay off your liabilities the major
[76]
perk of what's happening
[77]
inside of the velocity banking strategy
[79]
is that you're paying off debt sooner
[81]
which seems like i'm saving interest and
[84]
maximizing my control and i'm putting
[86]
equity
[87]
into the property that i own so that i
[89]
have this
[90]
equity pool to be able to draw from
[92]
essentially for
[93]
emergencies and opportunities now that
[95]
can sound very similar to
[97]
infinite banking let me share with you
[98]
what infinite banking is just in case
[100]
you're not familiar
[101]
infinite banking is a strategy of using
[103]
a specially designed whole life
[105]
insurance
[105]
policy or contract that is with a mutual
[108]
company that pays
[110]
dividends to earn high cash value now
[113]
this is not just
[113]
any old life insurance policy this is a
[115]
policy specifically designed to
[117]
pay in your premiums and then you have a
[119]
death benefit you also have a growing
[122]
cash value that's as high as possible in
[125]
the early years
[126]
and continues to grow so similarly both
[129]
of them use the word banking
[130]
they're both ideas of being able to
[133]
recede from
[134]
or separate from the typical banking
[137]
institution where the bank
[138]
is in control of your cash and instead
[141]
take over the banking function for
[143]
yourself
[144]
both strategies say that they are about
[146]
maximizing
[147]
your control but really what's happening
[150]
behind the scenes
[151]
i want to give you a side-by-side
[152]
comparison between what's
[154]
actually happening in the velocity
[156]
banking strategy
[157]
versus the infinite banking strategy so
[160]
that you can make decisions for yourself
[162]
in reviewing this video there's a few
[164]
things i forgot to mention that i think
[165]
will bring a lot of additional clarity
[167]
to you
[168]
the first is that we are not anti-heloc
[170]
in fact we've even helped clients to be
[172]
able to implement
[172]
using a heloc specifically for investing
[176]
purposes
[177]
however we are not proponents of paying
[180]
off your house as fast as possible
[181]
because there are so many things
[183]
that cause you to lose control when you
[186]
do that
[187]
the first thing to compare is what's
[189]
happening with my extra cash
[191]
now if i have say five thousand dollars
[194]
worth of income each month
[196]
and three thousand dollars worth of
[197]
expenses my gap or cash flow is two
[200]
thousand dollars per month
[202]
what am i doing with that extra cash
[204]
well in the velocity banking strategy
[206]
you are putting that extra cash into
[209]
your
[210]
heloc or your line of credit and
[212]
essentially what's happening is you have
[213]
this line of credit that you're putting
[215]
all of your cash
[216]
each month and your cash flow your
[219]
surplus
[220]
so if you had a balance of 100 000 and
[222]
you're putting 5000 in that month then
[224]
your balance goes down to
[226]
95 000 from 100 000 and what's happening
[229]
is that you're building
[230]
that buffer of equity then you pay all
[232]
of your bills
[233]
out of that account and so the balance
[236]
on your home equity line goes up again
[239]
as you pay
[240]
out your expenses it drops down again as
[242]
you
[243]
then put in your income again so where
[245]
are you putting your extra cash
[247]
in the velocity banking strategy you're
[249]
putting it into the home
[251]
equity via the heloc itself
[254]
in the infinite banking strategy or
[256]
privatized banking which is another word
[258]
for the same infinite banking strategy
[260]
where is your cash going your cash is
[262]
going to premiums on a life insurance
[264]
policy
[265]
that money that you have put in in
[267]
premiums then is showing back
[268]
up for you in the cash value component
[272]
meaning that you have access to your
[274]
cash that you've put into the policy
[275]
now with infinite banking you do have a
[278]
drag
[279]
on your accessibility and your liquidity
[282]
in the early years because there are
[283]
some cost of the policy
[285]
and sometimes that can be a huge
[286]
deterrent to somebody because they say i
[288]
funded five thousand dollars into this
[289]
policy
[290]
i have access to maybe four thousand or
[292]
forty five hundred in the first year
[294]
that cost or that lack of liquidity is
[297]
due to the internal cost of the policy
[299]
however when you look longer term you'll
[302]
see that you have a tremendous
[303]
internal growth rate in cash value life
[306]
insurance on the infinite banking side
[308]
which i'll come back to in just a minute
[309]
now let's look at why you would do this
[312]
strategy
[312]
the velocity banking strategy what's the
[314]
main appeal or why you would do this
[316]
the number one reason is to pay off debt
[318]
as quickly as possible
[320]
and to save interest meanwhile you're
[323]
building equity
[324]
that you can essentially use and tap
[325]
into with the
[327]
infinite banking strategy the number one
[329]
reason to use this strategy
[330]
is that a you're building a death
[332]
benefit which is something that you can
[333]
pass on to your children
[334]
and leave a legacy you also are building
[337]
up cash
[338]
value which is a store of cash or
[340]
savings it's a true savings asset
[343]
that you can use for emergencies and
[345]
opportunities next question
[346]
where is the balance of my cash with
[349]
velocity banking
[350]
my balance is in home equity with cash
[354]
value life insurance where is my cash
[356]
the balance is in cash value or the cash
[359]
value of the life insurance policy now
[360]
let's talk about liquidity
[362]
how liquid is the equity in velocity
[365]
banking
[365]
versus the cash value in my life
[367]
insurance policy
[368]
let's look at velocity banking first how
[371]
liquid and accessible is that cash
[374]
well theoretically or hypothetically
[376]
speaking
[377]
if you have a line of credit and that
[379]
limit is a hundred thousand dollars
[380]
you should be able to have access to a
[383]
hundred thousand dollars
[384]
however you do not always have access to
[387]
the full hundred thousand
[388]
if you're in a position where somehow
[391]
that line of credit is frozen
[393]
or locked or reduced if you
[396]
look historically back in 2008 many
[399]
lines of credit were locked or frozen or
[402]
reduced
[402]
and we have personal experience of
[404]
people who have had that exact situation
[406]
happen
[407]
where they thought they had a hundred
[408]
thousand dollars of available line of
[410]
credit
[411]
and all of the sudden that was
[412]
tremendously reduced in one case down to
[414]
36 000
[415]
because there's a clause within heloc
[418]
that the bank
[419]
can change the terms if you're facing a
[422]
job change or job loss or income loss
[425]
or if your house value is significantly
[428]
reduced
[429]
as in 2008 so you should have liquidity
[432]
inside of a heloc as long as
[434]
your terms are not suspended or frozen
[436]
or reduced
[437]
the other challenge is that within a
[439]
heloc there's two different
[441]
portions or chunks of time the first
[443]
portion is called the draw period and
[445]
after that you have a repayment period
[447]
the draw period now that could be 5 10
[450]
15 years the most common is 10. if you
[452]
have a 10-year drop period on a 30-year
[454]
heloc
[455]
the first 10 years are the draw period
[457]
where you can
[458]
access and take your money out of the
[460]
equity this is actually done with a
[462]
debit-like
[463]
card and so you can very easily take
[466]
money
[466]
directly out of that heloc however as
[468]
soon as the heloc converts into the
[470]
repayment period
[471]
you no longer have that accessibility
[473]
now the
[474]
equity is locked and your terms increase
[478]
so that you are now repaying principal
[480]
and interest whereas before during the
[482]
draw period you only were paying an
[484]
interest only payment or only required
[486]
to pay an interest-only payment
[488]
you certainly can always pay more than
[490]
the minimum now as we're talking about
[491]
the liquidity of the velocity banking
[493]
strategy
[494]
it's supposed to be liquid but that's
[496]
questionable
[497]
it's not a guarantee that it will be
[499]
liquid for you let's jump over to the
[501]
infinite banking strategy
[502]
how liquid and accessible is cash
[506]
value well there are contractual
[507]
guarantees inside of a life insurance
[509]
policy
[510]
that you are able to access your cash
[513]
value now what does this mean you
[515]
actually can access your cash value in
[517]
multiple ways
[518]
one is through withdrawals and you can
[520]
take out your cash value
[522]
you can also access your cash value with
[525]
a policy
[526]
loan and that is as simple as making a
[528]
loan request to the company which
[529]
they're contractually required to
[531]
provide you
[532]
cash up to the available cash value
[535]
inside of your policy
[536]
what does that actually mean that means
[537]
your cash continues growing and you're
[539]
leveraging your cash value by using the
[542]
insurance company's money
[544]
that means your money continues growing
[546]
even while you're using it
[547]
and that comes into play in just a
[549]
moment as we'll talk about another
[551]
comparison
[552]
between velocity banking and infinite
[554]
banking next
[555]
let's look at does my cash
[558]
earn a return now if we look at velocity
[562]
banking your cash is going into home
[564]
equity
[565]
and that is through the home equity line
[568]
of credits
[570]
a home equity line of credit can never
[572]
earn
[573]
a return so even while your cash is
[575]
being stored
[576]
in the equity of the house the home
[579]
equity line cannot earn a return
[581]
and also the equity inside your house is
[584]
not earning a return
[585]
now this probably sounds a little
[588]
confusing because most people think
[589]
their home is a great investment
[591]
and that is earning a return for them
[592]
that's only true if you sell your house
[595]
and the house has appreciated in value
[597]
however
[598]
appreciation is completely independent
[601]
of equity
[602]
regardless of how much you have a loan
[605]
outstanding on your house or not
[607]
two properties can appreciate at the
[609]
same rate
[610]
and it has no discrimination based on
[613]
whether you have a loan outstanding
[615]
or whether you have your house
[616]
completely paid off
[618]
now if we look at earning a return
[621]
inside of a life insurance policy
[623]
the answer is yes indeed your cash value
[626]
does earn a rate of return so just how
[628]
much is that rate of return
[630]
well when we look at a cash value life
[632]
insurance policy and we look at your
[634]
cash value it grows
[635]
every year by guaranteed interest with
[637]
an after-tax
[639]
growth rate and it's uninterrupted
[642]
compound interest meaning you're getting
[644]
that very nice
[645]
exponential compound growth curve even
[648]
while you use your money because
[650]
you can borrow against it and keep your
[652]
money growing on top of the guaranteed
[654]
interest
[655]
you also earn dividends which are not
[658]
guaranteed but
[660]
are highly anticipated and the reason is
[662]
that the companies we work with
[664]
that we've seen have been paying
[665]
dividends for over a hundred years
[667]
even through the great depression so
[669]
what does all of that mean
[670]
when you boil it down even in today's
[673]
low dividend rate environment
[675]
you can expect a three to five percent
[678]
after tax internal rate of return on
[681]
your life insurance
[683]
cash value based on interest and
[686]
dividends now what that means is that
[688]
you are continuing to earn interest
[691]
even when you use your cash meaning you
[694]
are
[694]
offsetting the cost of capital because
[697]
you are
[697]
being the bank and truly earning not
[700]
just
[701]
paying interest if we look at the safety
[703]
between
[704]
velocity banking and infinite banking
[707]
velocity banking
[708]
your equity is not safe because it can
[712]
drop in value with infinite banking you
[715]
have safety because your cash value
[717]
cannot drop
[718]
in value so what does all of this mean
[720]
if we're looking for the strategy with
[722]
the maximum
[724]
control where i am in the driver's seat
[726]
of my financial life where i have
[728]
confidence and security for the future
[730]
and i know the future value
[732]
that i will have and i know that i can
[734]
access and use
[735]
my money and i don't have to have the
[737]
bank's permission
[739]
and no one can close down my terms of
[741]
authorization to get my cash
[743]
that's the maximum control and now after
[745]
we've compared
[746]
line by line velocity banking versus
[749]
infinite banking
[750]
i would say head and shoulders infinite
[752]
banking puts you in a position
[754]
of control and that is because you have
[756]
safety
[757]
you have liquidity that you can access
[760]
your cash value
[761]
and that is growing at a higher faster
[764]
compounded rate with velocity banking
[767]
i'm still not in control
[768]
because the bank has the authority to
[771]
trump my access
[772]
to capital i hope you've enjoyed this
[774]
comparison between velocity banking
[776]
and infinite banking i invite your
[779]
questions and the reason is that i know
[780]
this is a topic that
[781]
really is on many people's minds because
[785]
you want to be in as much control as
[786]
possible and you want to use your
[788]
resources to the best of your ability
[790]
to maximize your control and my goal is
[794]
absolutely to help you make the most
[796]
informed
[797]
best financial decisions possible
[802]
[Music]
Most Recent Videos:
You can go back to the homepage right here: Homepage