What is opportunity cost and how does it affect my financial future?
Opportunity cost is a major factor when it comes to financial growth. And, within the context of Infinite Banking, it is what helps us secure our financial future while using our money at the same time.
This is not a “too good to be true scenario.” It isn’t “having your cake and eating it too.” It’s just a simple financial fundamental that costs us now, but pays for itself in the future.
What is Opportunity Cost?
Opportunity cost is simply the cost of an opportunity–or the cost of using our money.
For instance, If I have $100 and I want a fancy pair of shoes. If I take that $100 and I buy those shoes, then I lose out on all the other opportunities that I could have put that $100 into.
However, that’s not the end of the calculation. Let’s say I could have put that $100 into 5% compounding interest over 30 years.
How much money would I have had?
So, opportunity cost says this. If I buy a pair of shoes today at $100, I lose out on the opportunity to have $432.
This is opportunity cost.
How we use our money is constantly in our control. And when we decide to use our money for one thing, we lose the opportunity, or the value, that our money could have created.
Opportunity Cost and Infinite Banking
With Infinite Banking we merge these two scenarios, that of buying the shoes and earning interest, together into one.
Why? Because we need the shoes and because we don’t want to lose the opportunity.
Growth, in the form of compound interest, is what makes our money so powerful over the years. The longer our money can grow, the more powerful that money, and the growth, will be.
With Infinite Banking we rarely, if ever, liquidate our money. Instead, we borrow money against our life insurance policy, and then pay it back with interest.
Why? So our compound interest can keep growing.
What’s the difference?
Well, just like in our first example with the shoes, the more compound interest we earn on our money, the more money we have.
Let’s look at $100,000.
What’s the difference in earnings on $100,000 over 15 years vs 30 years at this same 5%?
At 15 years we would have $207,892.
At 30 years we would have $432,194.
That is a significant difference!
Keeping Opportunity Moving
This is why taking policy loans is more effective than paying cash for big purchases like cars.
Most people will pay cash for their car.
But then they lose out on the opportunity that money could have made them.
With Infinite Banking we take a loan against our life insurance policy. However, we don’t take out our actual principle.
Our money inside our whole life insurance policy continues to grow while we pay back our loan.
And, once the money is paid back on our loan, our principle is still growing.
The point is, when we utilize the Infinite Banking Concept we force our money to keep growing and compounding indefinitely.
We never let ourselves get in the way of our money compounding. This makes the most significant difference in our finances over our lifetime.
We pay a little more for using our money, but compound interest more than makes up for that in our lifetime.
This is how Infinite Banking utilizes opportunity cost to keep our money moving forward and earning compound interest year after year.