Why You Should Consider Infinite Banking: A Client Journey

Richard: There's this great conversation that takes place about your own thinking and how your thinking leads to how your future can grow around your system. And you did the work -- I didn't jump in and call you and say hey Clayton, why don't you put your money in jars, and then why don't you set up all these automated transfers, and then hey Clayton, once you have enough money in the account, give me a call and we'll get you a policy. It's the exact opposite. And I think that's important for people to take away -- because they kind of want a roadmap for how to do everything. But the reality is how you do everything is different from how I do it and how Jason does it. So you need to find your way, and then by actually doing it, you're going to create capacity to grow and expand.

Richard: So how exactly do you decide to just implement the Infinite Banking Concept without even fully understanding how it works? Why would you even consider doing that? We're going to find out today -- because we've got an incredible guest, a client of mine, Clayton Smith. Clayton is a certified engineering technologist who understands mapping and geomapping and all kinds of important things around data. He has 25 years of experience based out of Edmonton, and he now focuses that knowledge and energy on real estate media and mapping -- drone footage, videos for realtors, and work for government clients. Really cool aspects of his company, C5 Projects. Clayton has been an infinite banker for a number of years, and I have some of the most epically incredible meetings with him -- our discussions take very diverse and fun tracks. So Clayton, thank you for joining Jason and me on the program today.

Clayton: Thank you very much, Richard. It's a pleasure to be here. I hope you didn't overpromise with the intro there, but it sounds pretty good so far.

Jason: Clayton, tell us a little more about your business. This is the first time we've had a chance to be introduced -- share some context on what your business does and the value it creates.

Clayton: Thank you, Jason. I kind of stumbled onto the idea about a year ago on a road trip -- a bit of a sabbatical. I was out on a walk on Vancouver Island and passed a real estate office with pictures of houses and maps and floor plans. I thought: I can make those. So I started digging into it, looked into a franchise opportunity but decided to go a different direction and combine my years of experience and interests into the kind of business I actually wanted to run.

I started picking up equipment -- a laser measuring device, a 360 camera, and then a drone. A friend of mine who's a real estate agent seemed like an ideal first client, and things started to move. It didn't really feel real until I bought the commercial liability insurance for $2,000 and switched my car to a commercial policy. I thought: okay, now I've got overhead to feed.

Over the months since, I've been making videos for properties -- showcasing them, telling a story about each one, giving people a compelling reason to get excited about buying it.

Richard: And you caught the Infinite Banking Concept intuitively -- you began implementing it without having complete clarity or the deepest understanding. Why?

Clayton: I first came across the concept years ago and was intrigued. Then in 2016, we decided to sell our house -- the Alberta economy was starting to slide. We cashed out some equity, put some into an RSP, paid down some debt, and then I thought: I've always wanted to try this infinite banking thing. I knew Richard from real estate meetings, so I gave him a call. By the time we met, I'd already decided I wanted to do it -- I just wasn't sure on the exact mechanics. Richard gave me "Become Your Own Banker," I skimmed it, confirmed I wanted to move ahead, and we got started.

Richard: The fun thing is Clayton gives himself less credit than he deserves. He asks a lot of questions. He's very inquisitive, has a thirst for knowledge, puts real time and thought into what he wants to know. We've had a lot of great meetings since that day, every member of the family is now in the system, and there's been meaningful growth -- through all the ups and downs of the Alberta economy over the past decade.

Richard: Your real estate background feels like a connection point to how the Infinite Banking Concept showed up in your life. We met through real estate investment circles -- through the RAIN group, Don Campbell's work. What comes up for you when you think about your real estate knowledge and how it intersects with IBC?

Clayton: The thing that took the longest for me to wrap my head around was the fact that you borrow back out of your policy and there are no set repayment terms from the insurance company. They don't care if you ever pay it back because they know they'll get their money back when you die. There is interest accumulating, so it is in your interest to pay it down, but having control over those repayment terms was huge for me.

We talked through scenarios early on -- what happens if I lose my job and can't cover the premium? A few years later, I had the opportunity to exercise that contingency plan. The policy has been a real resource to draw on during the transition from employee to business owner. It's a very unique tool that most people don't know or understand, and for some reason I just decided to embrace the whole concept.

Richard: One of the things I sense is that you realized early that you're not taking control of the entire banking function in your life all at once -- it's meant to happen gradually and incrementally. You saw the advantage of control and didn't need 100% of it to get started. Some people say: if I can't control it all, I'll wait. But you can't read about push-ups -- you have to do them. Whether you can do two or a hundred, you start and you get a coach to walk you through proper form.

Clayton: Honestly, I still don't fully understand how it all works. When Richard talks about internal rates of return on the policies, I'm just like -- okay, that's good. For me, it just works. The big thing was the control aspect. And I now look at every other investment through that lens. RSPs to me are almost like a jail for your money -- very limited control, even accounting for the tax shelter aspect. You're still going to pay tax on it eventually. And philosophically: registration leads to confiscation. The more money in a registered plan, the bigger the target for high-taxing governments. I stopped contributing to RSPs well before my employee-to-business-owner transition and focused on building my policy room.

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Richard: I had this picture of a fruit tree -- the government plants fruit trees and then waters them every February through bank marketing, getting people to put money into RSPs so it can harvest the fruit later. The concept of control means something different to everyone, but you can almost put a monetary value or a percentage on it. Maybe you have a private loan opportunity paying 12 to 13%, but the value of doing it in an environment where you have control versus not -- how much of that percentage do you assign to control? It's intangible but very tangible in how it affects your daily life.

And your circumstance -- transitioning out of your past career, not entirely by choice -- found you with an opportunity to go in a new direction. We had several meetings about how the policies work in that scenario, what the minimum premium is versus what the potential is, and how to give yourself breathing room to know that the system is not as restrictive as it might seem.

Richard: The knowledge that you don't have to repay policy loans -- it's not that you don't have to, but knowing the potential is there -- is something you hear about when you're exploring IBC. But to actually experience it is different. You were aware, you read the book, we had the meetings, you understood it. But you didn't truly feel it until you had the experience of holding outstanding loans and nobody showing up with a baseball bat asking for repayment.

Clayton: You captured it pretty well. The control over repayment terms gives you flexibility to invest the money how you want, and it also makes you think more carefully about what you're investing into. I've had some boneheaded decisions over the years that cost real money. When you're borrowing from a policy to invest, you have to make calculations. If the investment doesn't pan out, the policy is still growing -- it just takes a little longer to pay the loan back. That all factors into the calculation.

I recently made a private loan secured across a few properties and vehicles, funded from a combination of lines of credit and policy loans. My plan for any money coming in is to send it to the policy first, or pay down credit lines and then to the policy. I look at it as: it's going to happen anyway, but if I keep the money running through the policies, I keep those numbers front of mind.

Richard: When you initiated that private loan, you borrowed from the life insurance company without reducing the asset's value -- and without triggering a taxable event. You're paying no tax on the daily buildup, no tax on the death benefit proceeds. The policy is the greatest tax exemption that exists in the Canadian and American tax code. From that position, you went and took advantage of a high-caliber lending opportunity -- not all-in from your policy, but in combination with lines of credit. Don't banks joint venture on deals all the time? You're just sitting in a different seat, with a little more control of the process.

Jason: People really need to take heed of what Clayton described -- the habit of having income go to the policy first. That goes down to behavior and mindset. When we started, it was about what's left over to fund premiums. Over years of curious, engaging conversations, we've moved from "deal with the money left over" -- which is how most people are trained to think -- to "what about the flow of money through your hands." That's a big shift.

Jason: Another thing that comes up: given your transition from employed to self-employed, you now have some ability to control the timing of your income. You can now strategically draw down registered accounts in a tax-preferential window -- the whole purpose of those is to take them out when you're in a lower bracket. You're now in that position, and we've been talking about how to cycle that capital from old systems into the new one in a deliberate format.

Clayton: It's given me a chance to experiment with ideas I'd had for years. Before the transition you and I had talked about collapsing my RSP and getting it all into policies -- it made more sense from a control standpoint. My RSPs were mostly in cash anyway, so I wasn't doing a lot with them. Same with my pension from work. There have been opportunities to transition a lot of that out of the money jails and into policies and working assets. During the sabbatical I thought: this is actually the time you're supposed to be collapsing RSPs. When your income drops, that's the window the RSP was theoretically designed for. So I started pulling the money out, got some refunds, and cycled that back through my policies and other investing.

Richard: What would you say to newer listeners about how you went about investigating this concept?

Clayton: Start as soon as you can. Looking back, if I had started these policies in my 20s I'd be in a far stronger financial position now. For the way my mind works, it probably would have made more sense to build equity inside a life insurance policy than to buy real estate. The policies and the lending ability on them -- it works like a HELOC, but you have far more control because there are no mandatory monthly payments. So you have total control over your repayment schedule. Sometimes you need money for a project and won't get paid for two or six months -- knowing you don't have a cash flow crisis while you're waiting is huge. When the money comes back in, you dump it back into the policy, pay the loan off, and go on to the next thing.

And thinking back to something Richard said early on when we were getting the policy started -- he described it as real estate without walls. Once I got into it, I thought: yeah, this has almost all the financial benefits of real estate without the political risk of property taxes skyrocketing, without unclogging a toilet. When you look at the time it takes to build equity in a policy versus in real estate, there's also something interesting: in real estate, tenants help pay down the mortgage over time. Here, if I borrow money to max out my contribution room in a policy, I'm building equity in a different way -- and being in a position where I can decide to what degree and how I want to go about building my future.

Richard: Something Nelson talked about was planning for windfalls -- selling property, a death claim, things of that nature. But there's also planning for known events. Known events would be like: my kids are going to exit school and take over their own expenses, I won't be feeding two teenagers steak dinners three times a week. What does that freed-up cash flow mean? One client I worked through this with had kids in competitive sport. We actually added up the tournaments, outfits, equipment, gas, coaching -- before they knew it, it was $32,000 a year of after-tax income. One partner's full gross salary, every year, to support one activity. Now you know the timeline on that -- three or four more years, phasing down. That's a known event. You can start funding your system a little more aggressively today, knowing that capital is coming back to you in a few years.

Clayton: That reminds me of the savings jars. I used to have a vacation jar, a spending jar. The illustration you went through, Richard, was how you build up the savings and then kill the savings, then have to replenish, then kill it again. Instead of that, it finally made sense to me to get the money into the policy first and let it continuously compound for the rest of my life. I can pull money back out in the form of a policy loan and then pay it back from the money that's coming in anyway -- the same money I would have saved in a jar. I'm just running it through the policy, and as it runs through, the compounding keeps going. It made a lot of sense after I started doing it.

All of these experiments -- they've worked out fairly well. They probably allowed me to take the entrepreneurial leap when I did. If I hadn't had the policies started, it might have held me back from choosing to head down this path.

Richard: Bob Shields wrote "You Don't Have to Die to Win" -- and one thing he said was: if you really want to save money, repay policy loans. Clayton, you just described that activity from firsthand experience. There's one thing Clayton started doing early on that I found interesting -- I asked him to record a video about it, and it's in our Ascended membership site. It circles back to the jars. He put together a small spreadsheet and started being an honest banker -- paying himself on smaller purchases, in the $100 range or less. He would take a purchase, make a repayment schedule over several weeks, add 10% on top, and do it on a bi-weekly basis. And he wasn't taking a policy loan to do this -- it was money from his savings account. The point was to go through the behavioral and mental experience of repayment on a small scale before applying it on a larger scale.

Richard: That's part of Clayton's learning style. Implementing at the micro level enhanced how he could think about doing it at the macro level. Practice begins with practice. It doesn't have to be a $45,000 flip project or an $80,000 truck. It can be a $200 hockey jersey, repaid to your system over four weeks.

Clayton: That's kind of how I got started. I had savings jars for vacation, for spending. To put the lessons into practice, if I wanted to go on a $500 weekend getaway and I had $1,000 in my vacation fund, I would divide that into payments over several weeks and set up automatic transfers to put the money back. The account would still grow because the transfers were timed to match my paycheque. After a year or two of doing that, I thought: oh, this is what Richard was talking about. And then it just made sense to put the money into the policy first and take it back from there. When you pull from a savings account, you stop any compounding effect. When it's in the policy, you're always capturing that compound growth. So it just made sense to run everything through the policies at that point.

Richard: What's key is that experience and practice is what led to natural expansion. People say: how do I grow my system? Nelson's answer was: as soon as your mind can conceive of it. Because you were doing the work, it prompted questions. You'd call and say: I've been doing this -- maybe I should get another policy? And then we'd look at whether it made sense and, if so, submit the illustration. There's this great conversation that takes place about your own thinking and how your thinking leads to how your future can grow. You did the work. I didn't call you and hand you a roadmap. It's the exact opposite. And how you do it is going to be different from how Jason does it, different from how I do it. Find your way and then do it -- and you'll create the capacity to expand.

Richard: Clayton, who would you want to be a hero to?

Clayton: My kids. I started policies for them a number of years ago. My philosophy was to be somewhat influential, plant some seeds, and then let them arrive at their own conclusions in their mid-20s. Some of that is starting to happen -- my oldest daughter is working full-time, and we're beginning to have conversations about her taking over the policy, buying it from me, and making it her own financial instrument. If she starts now in her mid-20s, by the time she's my age she could conceivably be financially free -- not just from the policy itself, but from the kind of thinking it requires to use it. Looking at money flowing through your life through a whole different lens, implemented at an early age, leads to financial freedom.

And if there are one or two people watching this sometime down the road and it turns a light bulb on for them -- well, that's great too.

Richard: Clayton, as always, I appreciate our conversations -- they're much more than just talk about a policy. We go down many different rabbit holes, which is always fun. And you may not know this, but someone's going to watch this and it might be the tipping point for them to implement this in their life. In that regard, you're already showing up as a hero. Thank you for being with us.

Clayton: Thank you very much. You as well -- take care.