In Part 1, I wrote about how you can use real estate investing to pay for college instead of a 529 plan that has limits on uses and investments. In this article, I will offer another, complementary, option: using the Infinite Banking Concept. We are going to use the following assumptions:

•  Need $50,000 per year for college

• 18 years to save

• $600 per month target savings

Infinite Banking is a concept created by Nelson Nash in his fantastic book “Becoming Your Own Banker”. It involves using specifically structured whole-life insurance policies that distribute dividends and accumulate cash value. This allows you to create a “family bank” that you can use to build an emergency fund, plan for retirement, optimize investments, or in this case pay for college. Historically these policies have growth at ~5% annually and have guaranteed cash values. Let’s look at how this would look for a 35 year old male with an assumed rate of 4.5%, a contribution of $600 per month and cost of $50,000 per year:

As you’ll note, you will be in an accumulation phase for the first 18 years as you accumulate more than $180,000 in cash value. At that point you will begin to withdraw expenses for tuition, etc. These are taken out as loans against the policy, and it may surprise you that they never have to be paid back. (That is not necessarily advisable and it is not the plan that we have.) So after 4 years of college, the loan balance is $226,282, but notice that the dividends and cash value continues to grow! Our plan is to encourage our children to pay this back over time so that they have access to the funds later in life for a house, funding a business, paying for a wedding, etc. No you may say, “But I don’t want my child to have any debt after college!”. This is not a debt to a loan originator. This is a debt that you pay back to yourself. We feel that sharing the ability to pay for college is highly beneficial and provides the following opportunities:

1. Understanding that there is an opportunity cost to going to college. I want my children to know that there is a monetary cost and a time cost. I feel they should understand the Return on Investment (ROI) of their education. Could the money and time be better used elsewhere?

2. Financial acumen and discipline: After they understand the opportunity cost and ROI, they will have the discipline to pay this money back. However now, they are paying themselves back. This means that if they start making loan payments their loan balance will decrease, cash value will increase as will the death benefit.

3. Future: Once the loan is paid back, my children will have the ability to access this cash throughout their lives to pay for cars, a wedding, a down payment on a house or even starting a business. How different life could be if so many of our students had access to these funds after college and not just up to college?

How can we supercharge this plan? Instead of just letting your cash values accumulate for the 18-20 years, you can borrow against them starting a couple of years after you have these policies. What if you start teaching your children in their teens how to use these funds? You could use them to buy a car and begin to learn about finance. They could borrow money to pay for a lawnmower, or other small business opportunities. In addition, you can then COMBINE this strategy with the strategy outlined in Part 1 to grow your values more quickly. This is the Investment Optimizer approach that we outline in our webinar. You can actually use this money in two places at once . . .

If you’d like to learn more about how to set up this specific plan like I did, visit our website at www.nextlevelincome.com/banking and check out one of our educational articles or webinars.