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Don’t lose your dairy because of a bank

Mary Jo Irmen for Progressive Dairy Published on 15 September 2020

I’d like to dive a bit deeper into the concept that I mentioned in a previous article and which I frequently teach – infinite banking.

(See “Farming without the bank: Believe it is possible” from the February 7, 2020 issue for more information.) I’d like to talk about how you can create a pool of money you can borrow from, where you have control of all the terms. This concept was first introduced in R. Nelson Nash’s book Becoming Your Own Banker.

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When you see his story, you’ll relate.

Nelson was playing the game and winning. He was living the good life. But then he had half a million dollars of land loans that went to 23% interest. Much like farmers, he was caught with a bunch of land debt for the development land he owned. How in the world would he pay this down? He thought all he could do was sell for a loss, because few were buying and those who were wanted a deal.

After many nights of wondering how he was going to get out of this mess, he realized he had money sitting on the sidelines that he could use. Money that was under his control. Money that was not in the bank’s hands. Money that he could use without putting his land up as collateral.

This pool of money was sitting in a whole life insurance policy. It was his cash value. He had forgotten all about it. He bought life insurance for the death benefit and just paid the premiums without ever thinking he could actually use that money for financing. That realization changed everything for him. He then went to work figuring out how to get as much money into policies as he could just to turn around and borrow it back to pay off the bank loans he had. In 15 years, he had the banks paid off. Not just $500,000 of debt, but $800,000 of debt.

Why does this matter to you? Because like Nelson, many of you are sitting in the same situation, regardless of current interest rates. Nelson needed to figure out a way to get out of debt faster, and he did that by using a correctly structured whole life policy with a mutual company. This type of policy is very important to the infinite banking concept because there are guarantees and dividends associated with them. In addition, the money in these policies never leaves the cash value account, which allows you uninterrupted, compound interest on your money.

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Nelson was a forester by trade. He thought long term, and farmers need to do those same things. In today’s world of instant gratification, that is not an easy task. Today, so many of us chase rates – interest rates or rates of returns. What we are not doing is thinking long term. We are not looking at the long-term costs of what we lose by financing. What we lose over our lifetime in interest paid to a bank we do not own or control.

Many want to see the numbers and dig more into infinite banking. I am not going to show you numbers today. Numbers don’t mean anything unless you have the right thought process to adopt infinite banking; that I am certain of. After talking to several thousand farmers and ranchers, I can tell you what it takes to understand infinite banking. Those who are ready will read Nelson’s book and my book, Farming Without the Bank. You can find the numbers there, but beyond that, these farmers want control, liquidity and guarantees.

Here are the five principles that are key to the infinite banking concept.

1) “Think long range”

2) “Rethink your thinking”

3) “Don’t steal the peas”

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4) “Don’t do business with banks”

5) “Don’t be scared to capitalize”

I’ve already touched on the first principle: Think long term. Are you thinking past you and planning for that? Many generations have not, and that is why farmers struggle. We all buy from the bank and think it is just part of the struggle of being a farmer. Many cannot admit they must slow down so the next generation can take over. Many are not thinking of how to financially make it easier for the next generation, because it wasn’t easy for them. Many are not patient. They want the massive dairy, and they want it now. If you are the older generation on your farm, you must realize you won’t get away from the banks overnight. You must think and plan for long term.

Secondly, you must rethink your thinking. What got you into the mess will not get you out of it. If your cows are not producing enough, you don’t continue to feed or manage in the same way, right? You change it up.

And for heaven’s sake, don’t steal the peas. Don’t forget to pay yourself back plus interest if you use cash in your correctly structured whole life policy to operate. Don’t forget to pay yourself back plus interest if you use off-the-farm income to supplement the farm. The farm must pay for itself.

Don’t do business with banks if you want to be in control. Many farmers have put their livelihood up as collateral. Banks get to decide when they pull back, when they call notes, and when and what the payback terms are. You must be the bank, and you become the banker. It is possible.

Finally, don’t be scared to capitalize. When you started your farm, or started taking over, you had to put up some money for the long-term gain. You had to capitalize. It’s the same thing with your bank; the more you put in, the more you’ll have long term.

The key is to change your thought process and get started today. Consider changing how you finance your farm, if not to help you, to help the generations that follow. You get up and work so hard every day. Don’t lose it or blow it for the next generation because of a bank.  end mark

PHOTO: Getty Images.

Mary Jo Irmen

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