The Private Reserve Strategy™ is another name for the Infinite Banking Concept, but illustrated in a slightly different fashion. Instead of focusing on the idea of “paying yourself back,” the Private Reserve Strategy™ highlights the use of your cash value as collateral to borrow for purchases. Its a different approach to the same fundamental concept.
The “story,” if you will, of the Private Reserve Strategy™ is of 3 unique lifestyles. The debtor, the savor, and the “Wealth Creator.” Each need to make purchases, but the way those purchases are made creates substantially different outcomes over the long term. Here they are:
When the debtor needs to make a purchase of any kind, he borrows money. In other words, he is leveraging his future income to pay for the item he needs now. This is his lifestyle. He always seems to be in debt to someone else. He struggles to earn interest because he is always paying interest. He constantly falls below a zero balance (black line below representing a zero balance) and works to pay back loans in order to get back to a zero balance (loan payoff). Not only does this individual lose interest, but also loses the opportunity for those lost interest dollars to earn future interest.
The Saver handles his finances a little bit differently. He too makes a payment, a payment to himself, in order to save for his purchases. He avoids paying interest, but every time he makes a purchase he drains his savings- setting him back to zero. The idea here is simple. He only saves enough for his next purchase. He never pays himself interest, even though when other’s use his capital, he charges them. He never seems to get ahead, because he doesn’t understand the value of his money when he uses it.
The Wealth Creator
The Private Reserve Strategy™ centers around this 3rd individual… The Wealth Creator. The Wealth Creator realizes the value of compound interest and never wants his dollars to stop working for him, no matter who uses the money. Just like the saver, the wealth creator saves money into his own account for those purchases, but unlike the saver, the wealth creator knows that if he empties his private reserve, he will have a hard time replenishing those dollars. Instead of accessing his money, he utilizes a loan strategy that offers a loan at a similar interest rate as he is earning in his compounding account. By collateralizing his account he has the money he needs to make his purchase, but he doesn’t interrupt his growth. Even though he is paying a little in interest, his purchasing strategy is more efficient, and his outcome is far superior to the debtor and the saver.
Whether you follow the mindset of “paying yourself back,” or “collateralization” through the private reserve, they both have the same outcomes. Both work best through the use of dividend paying whole life insurance, and both of them teach the same philosophies- be in control of your finances. If you’ve actually finished this post, and actually understood my home-made graphics, feel free to get a free copy of “The Banking Effect” (click for more info and a free copy). It is the best way to understand the ideas and philosophies behind the Infinite Banking Concept and the Private Reserve Strategy™.
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