Feb. 24, 2023

Capital, Banking, and The IBC Grocery Store Analogy

Capital, Banking, and The IBC Grocery Store Analogy

In his book, Becoming Your Own Banker, Nelson Nash did something very special to help readers gain a deeper understanding of the importance of capital formation.

Rather than discuss money directly, he talked about it through the example of a grocery store owner stocking cans of peas.

"Don't steal the peas!"

In his book, Becoming Your Own Banker, Nelson Nash did something very special to help readers gain a deeper understanding of the importance of capital formation.

Rather than discuss money directly, he talked about it through the example of a grocery store owner stocking cans of peas.

Nelson used food inventory because, just like money, it can be both sold and consumed.

In this episode, we discuss the Grocery Store Analogy as a foundation to understanding The Infinite Banking Concept®.

"Don't steal the peas!"

Link to episode:

Episode Highlights:


0:00 - Introduction

0:12 - Episode beginning

1:16 - The grocery store analogy

3:03 - How does this relate to IBC?

8:18 - Being a part of what you consume

11:56 - Capital has to come from somewhere

13:55 - Being an honest dealer

18:26 - Episode wrap-up


About Your Hosts:


Hosts John Perrings and John Montoya are dedicated to spreading the word about The Infinite Banking Concept so you can discover for yourself how you and your loved ones can benefit with a virtual streamlined process that will take you from IBC novice to sharing the strategy with friends and family... even the skeptics!

John Montoya is the founder of JLM Wealth Strategies, began his career in financial services in 1998 and is both an Authorized IBC® and Bank on Yourself® professional licensed nationwide.

John Perrings started StackedLife Financial Strategies after a 20-year career in the startup world of Silicon Valley where he specialized in data center real estate, finance, and construction. John is an Authorized Infinite Banking® professional and works nationwide.

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[00:00:00] John Montoya: Hello everyone. This is John Montoya. And

[00:00:04] John Perrings: this is John Parings.

[00:00:06] John Montoya: We are infinite banking authorized practitioners and hosts of the fifth Edition. Episode 61, the Grocery Store Analogy. In this episode, we're gonna be talking about a very special chapter in Nelson Nash's book, becoming Your Own Banker. And in this chapter, the reason why we chose it is because as Nelson said himself, if you understand the grocery store example, the rest of becoming your own banker is really a piece of cake.

[00:00:34] And so John, excited to do this episode with you. Let's get us started with the imagination exercise for.

[00:00:41] John Perrings: Nelson would say we should always be in two businesses, and you've heard us say it on this podcast probably a million times. You should be in two businesses, the business that you're in, whatever you do for a living.

[00:00:52] And then the other business is the business of banking. And so that's, now we're actually talking about. , the business of banking and how can we actually equate that [00:01:00] to some other type of business that we use every day. We may not be actually be grocery store owners, but it's certainly something we're familiar with as we've all gone into a grocery store and see how that works.

[00:01:10] John, take us into the steps of opening a grocery store. So let's kick off our analogy here and then we'll go piece by piece.

[00:01:18] John Montoya: Yeah, absolutely. If you're gonna start any business it does require capital. But specifically when it comes to a grocery store business, we need to secure a location right?

[00:01:28] From there, we're gonna hire employees, and then we need to buy inventory for our grocery store. We need something to sell to our customers. At that point, once we've capitalized our grocery business, we're gonna open for business and the goal's gonna be. Turn a profit. So how do we do that? We gotta sell the can of peas is what Nelson used to really emphasize.

[00:01:51] And if we turn over the can of peas, we have them, the customers buying the groceries, and we're restocking our [00:02:00] shelves, what's gonna happen is we're gonna earn a profit, we're gonna have a successful business. And the more times we can. Restock our shelves and have those can of peas get sold.

[00:02:11] We're gonna continue to earn more profit, and that eventually leads to a good problem to have because as a successful business owner of your grocery store, what are you gonna do with your profit? You should reinvest it, and that will likely mean you open up a new location, maybe across town or in the town.

[00:02:30] Nearest. So the idea behind the grocery store fits very nicely with what Nelson is trying to teach us with IBC. So let's bring in the IBC example. Now that we have these points that we've covered in opening our fictional grocery store, how does it relate to. Getting started with IBC

[00:02:49] John Perrings: John. And just to wrap up the grocery store part of it, I just wanted to bring in the other thing that Nelson mentions in the book, and he boils the grocery store owner, the function of the grocery store [00:03:00] owner.

[00:03:00] He boils their whole job down to receiving inventory in the back of the store and the warehouse. And then there's just moving that inventory to the front of the store where it can be purchased. So it's a, it's an interesting thing when you think of it that way. And that's how we're gonna start thinking about the banking business.

[00:03:15] It's the same. First we have to secure a location, right? Where is the best place if we're gonna be in the banking business? Other than getting an actual banking charter or something. But if we're gonna create an IBC banking business, where's the best location to store our capital?

[00:03:31] And, we talk about it all the time. We say a mutual dividend paying mutual insurance company. That's the, that is the foundation of what we use for IBC. The second stage is we need to qualify and pay premiums. So life insurance is so powerful, you have to qualify for it, number one, and then once you can get it, you have to pay premiums.

[00:03:52] Who's managing that policy? Who are you paying and who's managing the policy and helping that policy grow? And that's really. [00:04:00] The insurance company employee. So that's hiring your employees to manage this cash asset for you. Who do you call to get a policy loan? Who do you call?

[00:04:09] When there's a claim to be made? That's what the insurance company does. We're essentially paying them to run our cash business. And now that we've capitalized our banking business, so now we are considered capitalized. What do we do next? We need to buy inventory. So we pay premiums to use the life insurance company's money via policy loans.

[00:04:33] And so buying inventory, you can think of using a policy loan, you're gonna pay interest for that policy loan, right? So every time you pay interest for a policy loan, you're basically buying for the use of that dollar until you can do something with that dollar to hopefully make a profit. So when you open for business, you're capitalized opportunities have a way of finding you, right?

[00:04:56] And so now what we do, now that we've purchased those dollars via the use of a [00:05:00] policy loan, now we're just gonna sell those dollars, right? We can go buy real estate, we can do some private lending, we can start a business, right? All of those things. So we're just. Thinking of our every dollar in our system as inventory that we're going to buy we're gonna buy the use of it from the insurance company, just like a bank buys the use of a dollar from us when they pay us.

[00:05:22] Right now it's almost no interest, but the little bit of interest, they do pay. They're buying, they're paying us for the use of the dollar we put there, and then they go sell that to a lender, or excuse me, a borrower. We're gonna do the same thing, right? And then, so now that we've acquired money for a little bit of money to make more money, that's called a profit

[00:05:43] And so what do we do with that profit? We use our profit to free up capital for reuse. So what does that mean? We need to be honest bankers and we need to repay the loans. So if we're gonna, if we're gonna take loans from the insurance company against our cash [00:06:00] value, we have to repay those loans and free up that capital again.

[00:06:03] That's what he meant by being an honest banker. And then what do, then we just rinse and repeat. Eventually, just like John was saying, when you have to open a new grocery store location, eventually we'll have the capacity for so much capital that it won't all fit into a single policy. And so what do we have to do then?

[00:06:22] We have to start a new policy, hopefully so that we can make more room for all the capital we're creating here. And your job as a capitalist is not much more than receiving just like the grocery store. It's not much more than receiving dollars into your IBC policy, right?

[00:06:38] Your warehouse of wealth, and then moving those dollars to the front of the proverbial store so that you can sell them and make a profit. And this is. Hopefully we're just doing a good job comparing the two businesses so that you can see that's really what it boils down to when we want to use money, when we wanna become our own banker.[00:07:00]

[00:07:00] John Montoya: And I, I think the novel idea for me, and probably for the majority of people listening to this episode, is the idea that you're essentially starting a business every time you open up a new whole life policy. I grew up the son of a butcher and a grocery store cashier. So ironically, both my parents worked for the grocery store, but they worked for the grocery store.

[00:07:24] They didn't. At the grocery store. And so they, they definitely had a very blue collar wage earner mentality. They didn't have a ownership stake in the business. And the novel idea here with what Nelson Nash is trying to really get you to think about is, Owning a business that you get to participate and really be a consumer of because you're all going to, myself included John Perrings included, everyone out there we're all going to consume well.[00:08:00]

[00:08:00] As Nelson said, we should be in that business and we've basically been conditioned our entire life to outsource the banking function to a traditional bank. And you really just gotta, call time out and realize. This is something that you can actually do yourself. You can take control of the banking function.

[00:08:21] So this is a pretty novel idea that Nelson is sharing with everyone, and I think that's one of the biggest takeaways from this

[00:08:27] John Perrings: chapter. Yeah it's it's really big because if you could own. The means of production for all the things that you're going to consume. Imagine the value you could create, because by the way, it's not a one-to-one value.

[00:08:41] You know when you buy something from a company and you send money their way to buy whatever it is. That purchase creates a bigger value in terms of the value of the company. It's not just a, if you pay $10 for a widget, the company doesn't grow by $10. The company grows by more than $10 because it's [00:09:00] now you're looking at the purchase price of that company, which is the future value.

[00:09:04] And so if you think about if all your dollars could go into a system that you had ownership of imagine how. , every dollar you spent would create two, three, $10, whatever the number is, but more than $1 of value in your life. That's really what we're looking at here with Infinite Banking.

[00:09:23] John Montoya: Absolutely. And not only that, but here's something else to consider about owning this business. For the people who are already business owners. Let me just pause it to you this way. , when you got started in your business, whatever it is that you do, were you guaranteed to turn a profit? The answer is no.

[00:09:44] It takes a lot of perhaps luck, skill, and guesswork in order to run a successful business. A lot of know-how when you open up a whole life policy, this is a business like Nelson would say. But here's the big difference. Unlike all the [00:10:00] other businesses that exist in the world that have no guarantees, this IBC business, it's a whole life contract, meaning, , you are guaranteed to have more cash value at a future date than premium paid into it.

[00:10:17] This is a business that is guaranteed to be profitable. How many people have that guarantee when they start their business? I know I didn't. So if you think about it, if you're gonna get into a business and someone could guarantee you that you were gonna turn a profit, , raise your hand if you would wanna start that business.

[00:10:40] It's a no-brainer.

[00:10:42] John Perrings: Absolutely. And being here in Silicon Valley, you get a lot of folks who they have a hard time kind of wrapping their head around capitalizing their life insurance policy. Meanwhile they're in the. , they're in the world of venture capital, but they, for, they somehow forget about the capital part.

[00:10:57] They're only focused on the venture part, which [00:11:00] is like the exciting, unicorn creation, if that ends up working out for you. But guess what, th that capital came from somewhere in order. For that to happen. So it has to come somewhere from somewhere to create that in your life as well. And so anytime we start a business, we have to capitalize that business.

[00:11:19] And that's exactly the same thing that happens in this banking business that we're creating using dividend paying whole life insurance.

[00:11:26] John Montoya: Yeah. And I'll say this, just because it's guaranteed. To be profitable. It doesn't mean that there's no risk of failure. And what I mean by that is when you take a policy loan, Nelson would talk about being an honest banker.

[00:11:40] He'd also say, don't steal the peas. When you take a policy loan, I always tell people, look. , if you're gonna take a policy loan or and not pay yourself back, that's the equivalent. As if you were borrowing money from your parents and you decided not to pay them back. And so I asked people, if you take [00:12:00] a loan from your parents, are you gonna stiff them?

[00:12:03] Are you gonna, or are you gonna pay them back? And they always say yeah, of course I'll always pay them back. And my answer to them is look, when you take a policy. , you should treat it exactly the same way that is tho those can of peas, that is a very precious commodity.

[00:12:17] That's your own capital. And if you're not going to repay your policy loans, essentially what you're doing, Is you're stealing from your future self. So also in this chapter, Nelson would talk about don't steal the peas. And it's really important that you all have that discipline, not only to capitalize.

[00:12:39] This whole life business, but also to be an honest dealer. Because really the only person that you're going to steal from is gonna be your future self. That's

[00:12:49] John Perrings: right. And just tying that into, how I was calling money inventory, when he talks about don't steal the peas, that's, You don't steal the peas because that's your inventory that you're [00:13:00] using to make money.

[00:13:01] If your your significant other goes in and says we own this grocery store, so I'm going to, just grab this can of PE cuz it's free, it's ours anyway. But what is unseen? And by the way, I say significant other could very well be you. You know what I mean?

[00:13:16] It's like any, anyone who owns something that kind of, they have free reign over it. So sometimes it's easy to miss what damage is being created by consuming that, that piece of inventory. So if you take a can of peas off the shelf and you eat it it takes you. 5, 6, 7 more cans of peas to sell, just to recover the cost of that can of peas.

[00:13:41] So it's not a free thing just because you paid for it. If it was there to earn money, you can't just consume it. And it's the same thing with our dollar. So what John Montoya is saying about, being an honest banker, that's exactly what's happening. This is your inventory that's there to create more for you.

[00:13:57] It's there to create. [00:14:00] More wealth, more assets, more income. And every time you consume it, you're just delaying the process longer and longer. Just when, if you see like a compound interest curve, it's insane. If you interrupt that curve by spending money in that account, it's crazy how long that delays the compounding effect.

[00:14:19] And that's happening every single day of our lives as we spend money on things because we are, we're not strategically capitalized.

[00:14:27] John Montoya: Hundred percent. And one more thing I would add too is, when you're restocking your shelves putting more cans of peas on the shelves, so that way you can make future purchases you should, when you go to take these policy loans from your whole life policy, not only repay them, but repay them with market interest.

[00:14:46] I think. It's really intellectually dishonest to just, because you can take a policy. and then just pay back the principle and whatever interest that the life insurance [00:15:00] company charges you. If you really want to set yourself up for the future, you should not only charge yourself a market rate, but a little bit beyond the market rate.

[00:15:11] Because what's gonna happen is you're going to set aside cash flow that is going to restock your shelves. I repay that policy loan, but you're going to. Basically create this discipline of saving money that is gonna have a profound effect. Because once that policy loan gets repaid, what you're gonna have is this excess cash flow.

[00:15:37] And this is a really good problem that we all get to with the IBC process, where we have to ask ourselves once loans are repaid. Where should we now redirect that excess cash flow? Can you max out the PUA rider? Is there any room left in your IBC policy or do you have to search for a new location and open up a new grocery [00:16:00] store?

[00:16:00] i e is it time to start your next whole life policy? So be sure, repay your policy loans, but make sure that you're also A market rate and then.

[00:16:11] John Perrings: Nelson would say it that in, in, in the way, if you're willing to pay another bank, so if you weren't doing any of this and you needed to go to a bank to finance something, you'd be, of course, if you'd do it.

[00:16:23] So you're of course, willing to pay that bank the interest rate in order to access that capital. If you're willing to pay another bank, why wouldn't you be willing to pay your own bank? And all of those things that John Montoya was just talking about. That's the reasoning behind it.

[00:16:39] So

[00:16:39] John Montoya: really a ton to unpack in this two page chapter. But so important that we really take time to think about owning our own banking business and just incredibly powerful the way that Nelson helps us to relate. The IBC banking process to opening another business which, [00:17:00] he calls the grocery store example.

[00:17:01] John, that's about all I had on this chapter. Any other thoughts that maybe you have to share with the

[00:17:07] John Perrings: listeners? No, I think we can wrap it up maybe just with this final quote. What kind of business do you want to be in? And John Montoya just talked about, do you want to be in one that where you're taking the risk or do you want to be in one where it's guaranteed to turn a profit?

[00:17:21] And Nelson said that businesses come and go, but banking is eternal. And the more we can control that banking function, the more control we are, for all of our lives. The generation's yet to come. So if you have any questions about this and you wanna, if you have any questions and wanna see how this could apply in your particular situation, as always, you can go to the fifth

[00:17:46] You can schedule a free no obligation consultation with us right there. Or if you're the type of person that likes to do a lot of learning online before talking to anyone, we have an online course that you can take advantage of and get tons of [00:18:00] information in that course as well. So I think that's it, John.

[00:18:04] Thanks a lot. This was a good one.

[00:18:05] John Montoya: Thank you everyone. Take care.