Bank on Yourself with Marty Smith

Transcript of Podcast Episode 177

Welcome to Security Mutual Life Insurance Company of New York’s SML Planning Minute where we share concise and thought provoking financial ideas for individuals, families, and business owners. Security Mutual, the company that cares.

Bill Rainaldi:
Hello, this is Bill Rainaldi with another edition of Security Mutual’s SML Planning Minute. In today’s episode, “Becoming Your Own Banker” with special guest Marty Smith.

Marty Smith has been a Regional Vice President for Security Mutual Life for the past 15 years. And he is a renowned expert on this concept of becoming your own banker. Welcome to the show, Marty.

Marty Smith:
Well, thank you, Bill. I appreciate you having me on.

Bill Rainaldi:
Well, fantastic. Marty, I’ve got to tell you that by the time I first met you, I had never heard of this concept of becoming your own banker. How would you briefly describe exactly what that is?

Marty Smith:
Well, I think it’s a pretty simple concept. It’s based on a book that’s called Becoming Your Own Banker by Nelson Nash. Nelson’s book—Becoming Your Own Banker—is the “bible” of The Infinite Banking Concept which Nelson created. It’s the “source” that everything leads back to. Now…I could say that Nelson Nash was a life insurance salesman who created the Infinite Banking Concept. But calling Nelson Nash a “life insurance salesman” doesn’t do him the honor and justice that he deserves. You see, Nelson was first educated as a forester. That hands-on forestry training allowed him to think 70 years into the future, just like we do in life issurance. He was also educated in Austrian Economics which gave him a counter balancing thought process of how money really works. Plus he was an entrepreneur involved in real estate investing.

Nelson Nash was an original, brilliant, thoughtful, provocative gadfly—a thinkers’ thinker—who was able to cut though and challenge conventional wisdom about money. The Infinite Banking Concept really is a different way of thinking about money. And when you hear it, it’s going to strike you like, “Well, why haven’t I heard of this before?” Or, “Why haven’t I heard people talk about this concept in the way that it’s being presented now?” It’s pretty fascinating because it’s really about how does money actuallly works. And one of Nelson’s famous comments is, “How you think makes all the difference in the world.” And that’s what this is all about, how you think about money. The bottom line is this: The infinite banking concept is a personal wealth-building strategy that really works!

Bill Rainaldi:
Okay.

Marty Smith:
So what I’d like to do, if you wouldn’t mind is, they’re really like 10 key points to becoming your own banker. The first point is, as Nelson would like to say, “Banking is the most important business in the world.” Not banks, but the concept of banking. Number two, what is banking? Well, banking is someone or some organization has control of a pool of money that can and must flow at a cost to meet some need. That cost is really interest. That someone could be your parents, could be your father-in-law, your mother-in-law. It’s somebody with money. Somebody who has that. And that could also include banks and other financial institutions. The third thing is that there is only one pool of money and it’s all part of the same system. So this applies to everybody, everywhere, all around the United States, all around the world. There’s only one pool of money.

Marty Smith:
Fourth, it’s this wonderful idea that you finance everything you buy. And what does that mean? If you finance everything you buy, that means you either pay interest to somebody else for the use of their money, like to buy a car, to pay for your mortgage, to make a major capital purchase. Or you give up interest that you could have earned by paying cash. So either way, you either pay interest to somebody else or you give up earning interest in every transaction that you ever make. And once you understand that, that helps you to focus on, how do I really use my money? Which brings us to the fifth point, which is, the alternate use of money must be reckoned with. We call that opportunity cost. What’s opportunity cost? It’s very simple. If I lose a dollar that I didn’t have to lose, I not only lose that dollar, but what that dollar could have earned for me.

Marty Smith:
So if I’m paying interest, everybody understands that concept. If I pay cash for something, which is certainly what my parents did since they were raised in the depression and save for everything that they paid for because they didn’t really have credit cards back when I was a boy growing up, it’s you paid cash, but when you pay cash, what that really means is, you’re taking money out of the bank. You’re never going to earn interest on that again. You do have what you bought, but you’re never going to earn interest on that again. And that’s something that’s very important to understand.

Marty Smith:
What Nelson brought also to the table was this idea and that’s number six. He said that the real problem is that the average American is paying out 34.50 cents of every disposable dollar on interest. If you think about that, think about the way that you finance your car or you pay for your mortgage or you make major capital purchases or you use your credit cards. That was that number that he came up with. The number’s not so important as with the idea of a large portion of what you pay is going towards interest. It’s not going into your pocket. It’s going out of your pocket to somebody else.

Marty Smith:
Number seven would be that the need for finance is the greatest financial need during one’s life. And it’s probably even greater than, should I dare to say it? Even greater than one’s need for life insurance protection, but I’ll get back to that idea. Eighth, again, another wonderful idea, the whole idea of becoming your own banker gives you better control of the interest and principal that you’re paying for the major items that you need during your lifetime. And that would include the cars you own, major appliances, the way you pay for education, housing, a down payment on a house, the investment opportunities and of course, for business owners, business equipment. The infinite banking concept lets you recapture control of the financing process. It’s so much easier and faster than commercial financing through finance companies and banks.

Marty Smith:
All right. Number nine You can create a system for finance throughout your entire life. And the the key to the system, as Nelson would say, is using dividend paying cash value whole life insurance. There’s a lot of reasons for that. We’ll get into that a little bit later. And then finally, number ten, and perhaps this is the key thing, the Infinite Banking Concept is a major paradigm shift in the way that one thinks about money. If you understand how money works, you’re going to treat it a little bit differently than what you’ve been accustomed to or what you’ve been taught to do. So perhaps it might be easier, Bill, just to give an example of how does the Infinite Banking Concept work in a practical sense. And I’ve got this little story that I like to tell which is actually a true story.

Bill Rainaldi:
I would love to hear it, Marty.

Marty Smith:
I was driving as I like to say, I’m driving down the highway with one of my friends. We’re in his car and he tells me, he says, “Marty, I’m going to go down to the dealership, trade this car in and buy a new car.” I said, “Oh, that’s great. That’s great.” I said, “Well, we’ve been talking about a lot of things like that and I’m just curious how that’s going to work for you because you know there are different ways for you to make that purchase, right? Since I’ve been telling you about the Infinite Banking Concept for all these years, I’m just wondering how you’ll plan to do it.” So he says, “All right. This is what my story is. I’m going to take the car down to the dealership. I’m going to trade it and the sales person going to give me a price, right?” He’s going to say, “How do you want to pay? Do you want to pay cash? Or do you want to finance this?” I’m going to tell him I’m going to finance it.

Marty Smith:
“All right? What does that mean?” “Well, that means I’m going to get a loan. I’m going to have to pay loan interest on it. What those numbers are really aren’t important for our discussion here. Just knowing that I’m going to finance, meaning I’m going to take a loan and I’m going to pay interest on that loan. I’m going to do that for 60 months.” I said, “Okay. I got it. I understand. That sounds great.” “So let me ask you a question. What’s going to happen at the end of those five years? And he says, “Well, it’s going to be pretty simple. At the end of five years, I’m going to end up with a five-year-old car, which I’ll probably trade in again and repeat the process. But I will have paid the loan principal and the loan interest to the dealership.”

Marty Smith:
I said, “Okay.” I said, “So my question is, you have the five year old car, you paid the loan principal and the loan interest, whose pocket is that in?” He says, “Well, that’s in the dealership’s, of course.” So I said, “So all you have to show is the five-year-old car.” I said, “Well, why wouldn’t you pay cash for it? That’s the second way to do it. You could have just got in paid cash.” He says, “Well, if I had the cash, I probably would’ve done that.” I said, “But think about this. Remember what we were talking about the infinite banking concept, you finance everything you buy? You either pay interest to somebody else, that’s true. Or you give up interest that you could have earned elsewhere. If you buy that car outright for whatever price it was, you’re in never going to earn interest on that money again. Is that true or false?” “No, that’s very true. I’m not going to have that money. It’s not going to be working for me.

Marty Smith:
“It’s like having a bank account and thinking of the bank account just like it was like a stock or a bond. I’m going to sell the dollars in my bank account, take them and give them to the car dealership so I can get the car.” That’s right. So it’s like you had to sell that bank asset, which is not going to earn interest for you ever again. All right. That’s fair enough. So then he said to me, “Well, how the heck would the infinite banking concept work?” I said, “Well, that’s a good question here.”

Marty Smith:
So think about this. I’ve been telling you that people who use the infinite banking concept own dividend-paying cash value whole life insurance. Some people believe that dividend-paying cash value whole life insurance is perhaps one of the best financial products that’s ever been created because of all the advantages that it offers. And that’s very true

Bill Rainaldi:
OK, Marty, just very quickly here before you continue. I don’t want to go off on a tangent here but I think it’s important to remember, a participating whole life insurance policy also offers other benefits and features. For example, it provides a guaranteed death benefit to help protect survivors. And death benefits are generally received income tax-free. Also, Marty, as you know, whole life premiums are also fixed and guaranteed to never increase.

Whole life insurance builds cash value over time provided the premiums are paid. The whole life policy’s cash value grows also on a tax-deferred basis. And of course, policy loans may be taken any time there is a policy value. Policy loans may be repaid using a flexible repayment plan. Repaying policy loans restores death benefits and the policy’s collateral capacity, so you can borrow against it again if you do that. A participating whole life insurance policy from a mutual life insurance company is also eligible to earn dividends. And while the payment of dividends is never guaranteed, any dividends that are credited may be used to add value to your policy.

So I just wanted to add that very quickly Marty, not to interrupt the flow of things here. So please, Marty, continue where you were.

Marty Smith:
Oh yeah. So think about this. You go down to the dealership. You’re still going to finance it, but instead of you having the dealership be your banker, you are going to be your own banker and you are going to use your policy cash values as the means to finance this car.

So what does that mean? That means they’re going to tell you how much the car is going to cost. What are you going to do? You’re going to call up the life insurance company and you’re going to say, “Hey, listen, I need a policy loan.” You’re going to take that policy loan for the value of the car and you’re going to give it to the dealership and you’re going to drive off the lot. No big deal.

Marty Smith:
What are you going to do? Well, understanding that you finance everything you buy, you’re going to be the client to your own bank. So what you’re going to do is you’re going to pay back the entire loan principal and the entire loan interest just as if you were going to pay back the same amount of money and the same monthly premium to whom? To the dealership. So that’s what you’re going to do for the next 60 months.

Marty Smith:
So what are you going to have at the end of that five-year period? Well, that’s pretty simple. What you’re going to have is, you’re going to have that same five-year-old car that you had, that you’re going to get ready to trade in again, but you’re going to have paid the loan principal and the loan interest back to whom? Where you’re going to pay it back to the life insurance company because that’s how policy and loans work. They are going to collateralize the amount of money that you take as a loan against your policy. But in actuality, whose money are you using to become your own banker? Well, you’re using the life insurance company’s money. So they’re going to loan you the money and you’re going to pay it back to who? You’re going to pay it back to the life insurance company.

Marty Smith:
But here’s the interesting phenomenon because of this process of collateralization. At the end of the five years, the amount of the entire loan principal shows back up where? Well, it shows back up in your policy’s cash value. Your contract is restored. This is by you becoming your own banker. But there’s a third element that also shows up. What happens when you become your own banker and take a policy loan? Is that your money never leaves that policy. The money inside that contract continues to compound uninterrupted.

Marty Smith:
So by you taking the loan, it’s not coming out of your policy, you’re using the life insurance company’s money. You’re going to repay the loan principal and the loan interest that goes back to the life insurance company, the amount of that loan principal should show back up in your policy plus any gain in the contract that would’ve been there anyway is back in your policy.

Bill Rainaldi:
Can I interrupt you for one second, Marty?

Marty Smith:
Sure thing.

Bill Rainaldi:
Just to be clear, what you’re talking about doesn’t necessarily apply to every life insurance company, is that correct?

Marty Smith:
Well, that’s true. The way that this works for whole life insurance is pretty simple. There’s two different types of whole life insurance policies. Some whole life policies use direct recognition dividends and others use non-direct recognition dividends. At Security Mutual Life, we have what we call non-direct recognition policies, our Whole Life for You 3 series, meaning when you take a policy loan, the dividends to the whole life policy are still being credited whether or not there is a policy loan. The money is still in the policy because when you take a policy loan, the money doesn’t come out of your policy. With a direct recognition type of policy, dividends might be reduced when you take a policy loan. But once you repay the policy loan, the contract is restored as it is with non-direct recognition policies.

Bill Rainaldi:
Okay.

Marty Smith:
So that’s how that works there.

Bill Rainaldi:
I would just add to that, of course, as you know, dividends are not guaranteed by anybody. It’s based upon the experience of the company.

Marty Smith:
Correct. The nice thing about here if I’m going to put in the plug for Security Mutual, Bill, Security Mutual’s been around now nearly 136 years. We’ve paid dividends for the last 130 consecutive years during every recession, every economic downturn, during the great depression, during every war, and even during the COVID-19 pandemic. Think about that. Dividends have been paid for the last 130 consecutive years. There are not that many companies who can and make that claim. Security Mutual Life can. Just be fair, of course, dividends are not guaranteed and past performance is no guarantee of future results.

Bill Rainaldi:
Yeah, that is a pretty impressive track record over that extended period of time. That is an important consideration I think for people. So getting back to the concept of banking on yourself, one thing that has always struck me and it was explained to me very carefully by someone else is that, the problem, for example, using your example of buying a car, is that what a lot of people do, if they’re not financing, if they’re not borrowing money to pay for the car, they’re building up their cash so that they have enough money to buy the car. They take the cash out and they’re back down to zero and they start all over again, building up money to buy the next car, et cetera, et cetera. And they spend their whole lives doing that. They never really build up more than the amount needed to buy the car.

Marty Smith:
Unfortunately, that’s very true. And that is the way that most Americans live. As some of my friends in the industry like to say there are three types of people, spenders, savers, and wealth creators. The spender is the person who’s at zero. They have a job. They’re able to obtain financing. They’re able to obtain a loan, but that means they drop below the zero line and then they have to pay back the loan. And as they continue to pay back the loan and they finish it off, they come back up to where? They come back up to the zero line and then they repeat the process again, but they go back down below the zero line.

Marty Smith:
The saver on the other hand is in a much better position. The saver is the person who is able to withhold that gratification, but they’re going to step-by-step build up the asset they need, the amount of cash that they need in order to make that car purchase. So on the day that they’re going to make that car purchase, it’s the best day, but it also is one of the worst days because they write out the check for the money. They drive off the lot in shiny new vehicle, but guess what? They don’t have any money in the bank. That puts them back down at the zero line. And then they repeat the process of saving and accumulating money to make their next purchase like that.

Marty Smith:
The third way to do it is what we call wealth creators. The wealth creators understand that they need to keep their money in a compounding growth position. What’s the way that they do that? We believe it’s by using the banking concept. They’ve become their own banker. They know that they’re going to put their money there because as they bank on themselves, they’re able to access that money from the life insurance company. Their money continues to grow. They repay the loan and the loan interest back to whom? Back to the life company, but guess what? The value, the amount of that loan repayment shows back up where? It shows back up in their policy along with the growth since their money has never left that policy.

Marty Smith:
It’s a different way of thinking about it. That’s why Nelson always talks about thinking. How you think makes all the difference in the world. Once you understand how money works, once you understand that, you finance everything you buy, once you understand that there’s a way to mitigate the amount of interest that you pay to others by you just changing your position in the story. So instead of you being the debtor, you are going to become the lender. You’re going to become your own banker and be able to take advantage of what that becoming your own banker means.

Bill Rainaldi:
Well, that’s fantastic, Marty. Thanks very much. Just to wrap things up, I know there’s more to the story here and there are some things that we don’t have time to cover on a short session like this, but if someone wanted to learn more, I guess the place to start would be Nelson Nash’s book, Becoming Your Own Banker. Any other resources you might suggest on something like that?

Marty Smith:
There a number of wonderful books. The Bank On Yourself Revolution by Pamela Yellen is another excellent book that tells a story and gives lots of wonderful details and examples along those lines. There’s another friend of ours, Don Blanton of Circle of Wealth has written a book called The Personal Economic Model. If want to understand how money works, you should take a look at The Personal Economic Model by Don Blanton of Circle of Wealth, of MoneyTrax. It will change the way, again, how you think about money.

Marty Smith:
And then finally, there’s a good friend of ours, Bill, Leonard Renier. Leonard Renier of the Wealth & Wisdom Institute, he’s the founder and creator of that. He is such a knowledgeable, wise person who has a number of books that are available that you should take a look. One of my favorite books of his is called The Family Legacy: The Generational Solution: Creating Generational Wealth, again, talking about the value of how you need to handle your money. It’s a different way of thinking about it. So those would be the ones I would talk about.

Bill Rainaldi:
Well, that’s fantastic Marty. And of course, we are not in any way paid endorsers of these individuals or their products. We’re just trying to show people a different way and maybe to work for some people, maybe it won’t, but a different way of looking at money.

Marty Smith:
Yes, definitely. Definitely. I used to tease Don Blanton that I felt like I worked for him more than I worked for Security Mutual sometimes because I would talk about this concept, which I love in which I use myself. So the whole idea of becoming your own banker, banking on yourself, trying to enlarge your circle of wealth, wanting to understand wealth and wisdom about how things work, how money works, how our financial world is all held together, those are the key things. And these are wonderful individuals with phenomenal ideas that certainly need to be read and listened to.

Bill Rainaldi:
Well, this has been fantastic, Marty. Thank you so much for joining us today.

Marty Smith:
Well, Bill, it is my pleasure. And of course, anybody if they’d like can always give us a call. I’m happy to speak to them and put them in the right direction about finding out more. It’s all about education here. That’s what this is.

Bill Rainaldi:
Fantastic. Thanks very much, Marty. Take care.

Marty Smith:
Thanks, Bill.

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