Compounding Interest and the Application for the Infinite Banking System
Einstein reportedly said that “compounding interest is the Eighth Wonder of the World. He who understands it, earns it. He who doesn’t, pays it.” Whether this quote actually came from him is irrelevant when we look at the truth behind the statement. First let’s review how compound interest works, then the negative and positive applications.
If someone offered you $1,000,000 up front or $0.01 that doubled every day for a month, which would you take? If you don’t understand power of compounding, the million dollars seems like the logical choice. However, $0.01 that doubles every day equals $5,368,709.12 on day 30. If only we all learned how compounding applies to real life before finishing high school.
Americans undeniably have a debt problem, and I’m not talking about the good kind. Chronically charging life on credit cards and procrastinating payment plans, means that 50% of Americans pay 15-29%+ interest… daily, and 96 million people cannot pay more than the minimum requirement (CNBC May 2020). Yes, credit card interest actually compounds daily, the APR is not an accurate portrayal of what’s owed. Any balance not immediacy paid off to play the points game, actually works against our talk. Yesterday.
For other Americans, we apply compound interest in our favor through retirement plans. If you’re familiar with the Rule of 72 and start investing in your twenties (72 divided by interest rate equals how long it takes for your money to double), you could have millions saved for retirement.
However, many of us are not those people who started investing early.
Especially if you finished college during the great recession.
There is a third application. Compounding interests, plus a dividend, activates inside a properly structured whole life policy. This is the magic of what we call infinite banking. The magic also means that you are able to use your money while it grows, unlike retirement plans that have a penalty associated with touching the money before you’re of age. If you are in the disciplined minority who repay what you use with interest, you’ll have the opportunity to both compound and grow your money inside a policy, as well as use it for investment real estate, or a start-up company, etc. Why repay yourself with interest? Because compounding. The gross cash value of your policy compounds while you use or invest the net elsewhere. It feels like magic but really, it’s just math.
Tapping into the power of compounding interest doesn’t require Einstein’s rocket science. However, it does require action. Of course, those who begin in their twenties will be well ahead of those who start in their fifties, but that doesn’t mean you shouldn’t begin somewhere.
We believe there is a strategy for everyone and it’s our job to apply compounding interest in your favor. Whether you’re struggling with bad debt, or want to turbo-charge your finances, let 2021 be a year of activating the math that works like magic. Book an appointment with us today.