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What is the "Banking Function"...and Why Does it Matter?

Updated: Jul 6, 2023

If you read any of the top books on financial advice, and you might learn some things about retirement planning or real estate, but chances are none of them will talk about your strategy for banking. In fact, you may have never even realized you needed a banking strategy. The idea of controlling the "banking function” is central to Nelson Nash’s Infinite Banking Concept. What exactly does that mean, and why does it matter to the everyday American?

Before we dive into that thought, let's make sure we're on the same page with our definitions. Banking is simply the movement of money. It's something you'll be participating in for the rest of your life. You cannot opt out. Even if your "bank" is a tin can buried in the back yard or cash stuffed under your mattress, every time you use that money as a form of exchange, you are participating in banking.

What exactly is “the banking function”?

Most of us are familiar with banking with a commercial bank of some sort. If you think about what banks do, it can be boiled down to three different services: facilitate payment transactions, store money, and provide financing.

Now the fact that I can use a bank to pay my bills is extremely convenient. I love the ability to put recurring expenses on auto-pay and use my debit card to shop at the grocery store. I'm not advocating changing any of that. Banks are really good at facilitating payments, so let's leave that one just as it is. However, this isn't where they make their money.

The second service banks provide is that they offer a place to store your money. Depositors leave their "safe" money in the bank and earn a bit of interest. And let's be real...even though they're not paying us much to leave it there, it probably is a better option than a tin can in the back yard. But nobody expects to get rich off of the interest rate in a savings account.

After you deposit your money in the bank, what happens to it? Does it just sit in the vault under lock and key? Not at all! The banks use your money that you've deposited to carry out the third function of a bank-providing financing. The fact that banks have depositors allows them to loan that money out to others (at a MUCH higher interest rate, mind you) to finance THEIR cars, mortgages, credit name it. The spread between what they're paying you and what they're charging others makes this a very profitable business model.

Now let me interject one thing here. I'm not mad at bankers. I have friends and family members who are bankers. They are great folks. I'm happy for their business to make money. However, if the bank is making money off of MY money, when I could be making money off of my money, I might consider making a change.

Taking control of the banking function, which Nelson Nash promotes in his book Becoming Your Own Banker, revolves around the latter two services that banks provide. By storing my money in my own metaphorical "bank" and financing the needs and opportunities of my life from that place, I've created a system that benefits me and my family instead of the bank. I'm not just the bank customer anymore...I'm the banker and the bank owner.

Why does it matter to me?

Just like in any business, ownership has its privileges. The bank owner gets to call the shots, set the terms, and have the control. The bank owner also shares in the profits. The same is true when you become your own banker. You become a part owner in a system where you make the decisions. Someone else is not holding your fate in their hands. Beyond that, as an owner, you also participate in the profits that your system helps to generate.

How exactly that is done is covered in other posts, but suffice it to say that taking control of the banking function in your life has the ability to move the needle in your financial future more than just about any other action you could take. Freedom. Control. Ownership. Peace of mind. If these things resonate with you, let's have a conversation about becoming your own banker.

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