Imagine for a minute that you own a bakery; would you ever sell a loaf of bread to a distributor for 20cents? And then later go buy that exact same loaf of bread at the store for a dollar, of course not. That would be absurd, but ironically you’re likely doing just that with your own money. You see, while you might be in the business of selling bread, you’re definitely in the business of making money. Everybody is, that’s right. Whether you’re an employee selling your time and expertise to the company you work for or whether you’re a business owner manufacturing and selling widgets or services, you’re ultimately in the money business and so is everybody else. In fact, there is only one pool of money in the entire world, yes, one! Regardless of the fact that is manage by any number of institutions like, banks, insurance companies, corporations and individuals living in various countries and using different currencies. In the end it’s all part of the same pool of money.
In a way, it’s like water. About 75% earth’s surface is covered by water. When the sun heats it up, it evaporates into the atmosphere causing wind currents. The current takes the water vapor around the earth and precipitates out in the form of rain, sleet and snow. Along the way, some of it must flow thru us all or else we die, but in the end it all ends up back in to the oceans, it’s just one big cycle. The same holds true with money.
Money is constantly flowing through the banking system and a portion of it must flow thru you, so you can live. But in the end, it all ends up back in the banking system again. So like water, money also operates in one big cycle. Hence the term, circulation of money, to better understand this, let’s take a look at what happens when you deposit your paycheck into your checking or savings account at the bank, does the bank keep all the money under lock and key? Absolutely not! Remember that they are also in the business of making money, so they must put it to work and they accomplish this by investing it or lending it out to other companies and individuals. In fact, any place you store your money for future use, whether it be with the insurance company, a bank or retirement account, does the same thing.
They take the money you deposit with them in the front door and sell it out the back door to mortgage companies, automobile financing companies, credit card companies or development companies, and what do those companies do with it? They sell your money back to you. Think about that for a moment, when you buy a car or a house, what’s the first thing you have to do? You have to qualify for it. You must demonstrate that you have the ability to pay back any loans you receive, but here is the kicker. Whose money are you really borrowing? Your own money! It’s the same money that you paid to the insurance company, deposit with your bank or save in your 4O1 k or IRA, it’s your money.
Those companies have simply sold your money to the financing companies who are selling it right back to you if you qualify. But are able to borrow your own money at the 1% or 2% rate you’re earning in your checking and savings account? Absolutely not! Remember the bank, the insurance companies and the finance companies are all in business to make money, so the bank and insurance companies mark up the money they sell to the finance companies and they, in turn mark up the money they sell back to you. But not before they give themselves a very nice profit along the way. Think about it this way, if you have a 7% fixed rate mortgage and you end up keeping that mortgage for 5 years before refinancing or moving, which is about the average in the United States, over 86% of every dollar you pay on your mortgage goes towards interest.
But remember, the mortgage company originally got the money from the insurance companies, banks and retirement accounts, so you indirectly lend a dollar only to have them lent it back to you, with the following restrictions, 86 cents of every dollar you repay will go to their employees and their investors, it’s absolutely insane. No wonder why so many people struggling to get ahead. This banking system works beautifully for the bank. But not for you, unless you become your own banker.
By taking control of the banking process, you’ll soon be in a position to stop supporting the employee and share holders or other banks and other finance companies to all interest that you paying to them and instead use that money to support you and your family. Taking control of the banking process will prove to be the wisest decisions of your lifetime.
For more information contact a True Financial Age Advisor.
