How do banks make money? is Part 1 of The Infinite Banking Concept Series. Go to the end of the article for the rest of the series.
How do banks make money? We all use banks one way or the other. We step into these nice buildings with the marbled walls and modern furniture but rarely raise the question. Exploring this one question has altered our financial blueprint.
It's funny. As a software developer, I built banking solutions for the top 50 banks in the United States. But it wasn't until I read books like Becoming Your Own Banker by R. Nelson Nash and Bank On Yourself by Pamela Yellen that I realized consumers have been played by these institutions.
The secret to financial success has been under our nose the entire time.
It is important to establish an understanding of what banks want. When you think about it, all banks generally operate in the same manner.
Banks advertise to buy your money by paying you interest. But, they don't just accept the deposit and let it sit for 30 years. They leverage your dollars and put them to work.
The example pictures below were taken from a real Bank from America.
Does the bank care more about net worth or cashflow? They care about cashflow (money works for them in Cashflow Quadrant I). Banks want the money to continuously flow in so they can loan it back out at a higher rate. When you think "Pay off mortgage", your bank salivates.
It is all about control. Once you hand your money over to the bank, they control it as a resource. They use your money to make them money.
Banks can virtually turn your $1 into $10 or even $20 when extending loans. Now, you can't multiply (see the Rule of 72) your money, legally. But, you can velocitize your money like the banks do.
There are a lot of financial mentors that you can follow like Robert Kiyosaki, Donald Trump, and Warren Buffett. I say your mentor should be the bank. Don't just learn to invest, figure out what banks are doing and implement the strategies in your own finances.
Now you can answer the question: How do banks make money? Learn to become your own banker by using the Infinite Banking Concept or Bank On Yourself strategies.
These are the secrets the financial institutions don't want you to find out.
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