A. Once you understand that the essential element of captive banking is to “fund” your own bank so you can recover the interest that you have been paying to others, then you have to be willing to find wasted money (unnecessary wealth transfers) that will not disturb your current lifestyle. A couple of places to look are your insurance deductibles on your property & casualty policies and your medical & disability policies. If they are too low, then you should consider raising them to free-up some dollars so you can redirect them to your captive banking policy. Also, where are you currently putting your money away for the future? If you are contributing to an IRA or any other type of qualified plan, then you may want to consider redirecting those dollars to your policy instead. Not only will every dollar you place in the IRA be taxed at a later date but all of the growth will be taxed as well. Why not have those dollars growing tax-free and working for you instead of some financial institution – and ultimately the government, which is just patiently waiting for you to pay them more tax down the road.
But a word on the idea of not removing and using the equity out of your land and home. Remember that the equity that is sitting there has no rate of return and is always at risk because the market determines the amount of equity at any given time regardless of how much or how little you have paid on that property. The worst part is that it’s not at all liquid so it presents an issue for you when you might need it most. It might very well be the most financially sound decision you ever make to free the equity from your farm or ranch and put it in a vehicle that is secure (no risk), grows (guaranteed rate of return) and most importantly is liquid (fully accessible for you to use for both short-term and long-term needs.)
