Necessity was the Mother of the Infinite Banking Concept
In order to best understand the Infinite Banking Concept (IBC) we need to look closely at the situation that sparked the discovery. In Becoming Your Own Banker, pages 12 and 13, Nelson tells the story of how he discovered IBC. I won’t recount the whole story, just the part that is relevant to understanding the problem we all face in the financial world.
Nelson started working in the real estate business and he had early and great success. His success, though, was determined by how much leverage, i.e. loans from the bank, he could get. He would buy a property with a loan from the bank, pay interest for a while on the property that he bought, and then sell the property for a profit. Due to his success, he expanded and even vacationed in Europe with his wife for a month after selling a property.
At the time of the expansion of his real estate business, he was paying 9.5 % in interest. Every 90 days he would have to renew the notes on his property at the current interest rate. Things though were about to get interesting. In 1981 and 1982 interest rates rose and peaked at 23 %. Nelson had 500,000 dollars in loans and was now required to pay $67,500 of interest per year that he was not prepared to pay nor even expecting to pay. Not a situation anyone wants to be in.
What would you do in the situation? Try and sell? Nelson considered it but the thought of losing five times what he paid for the property he owned was not a winning solution. And if he couldn’t pay, the banks would foreclose on his properties. His situation was dire.
Most of us won’t face his situation, but if you own a home, have a car loan, or credit card debt then you know something of the pressure to pay and how difficult it can be at times if you are unable to pay these debts.
Nelson due to necessity had to think differently about his situation. He needed to figure out a way to escape from the financial prison that he had created for himself. This is where he discovered the Infinite Banking Concept. Necessity was the mother of invention.