What would happen to the banking community if We the People decided to cash our paychecks instead of direct deposit into a checking account? Every bank in the country would have to shut their doors by days end. They don’t have that kind of cash on hand. If we demanded cash instead of making deposits they’d say it was a run on the banking system. From an economic standpoint nobody should want something like that to happen. It would be devastating to our economy, but here is the point; we have much more power over the banking community than we realize. We control the flow of the money in and out of the system through our checking accounts.
If we shut down the flow of the money we could essentially shut down the whole system. Again, we don’t want to shut down the banking system! It is however kind of comforting to know we could do it and if we did they would have to listen to our demands before we resumed traditional deposits. The point is we have control of how and where money flows from our pocket to everybody else. There are no laws or regulations dictating how we bank and borrow.
A due date is only ink on paper. We bank and borrow the way we do because it’s “always been done this way” and presume it’s the best or only way to manage our money. The majority of the population would concur that banks take advantage of us through our patronage and we can do to get them to change their ways. This is why we continue to ride the proverbial treadmill; we’re following their rules, their business model.
The deposit is where the transfer of power takes place. This is where they become the authority and we become the subordinate. Power and profitability is now in their hands. Making a deposit into a bank is voluntary or at least keeping it in the checking account is voluntary when direct deposits are mandatory. If this voluntary deposit is what gives them power and profits then it stands to reason we can give that power and profitability to whomever we please.
There’s nobody out there telling us or forcing us to play by the traditional rules of power and profit. Sadly, we have little choice out there because they are all playing the same game. Credit Union or Bank, they all operate the same way. So what can we do? We change the rules engagement!
Where is your paycheck?
We want to have a quick discussion about your paycheck because that’s where your whole life starts and ends. Money is a cradle to grave main stay. They say money isn’t everything, which might be true. But, it’s the only thing if you want to feed yourself, house yourself and build any kind of life in the modern world. Make no mistake; the all mighty dollar really does make the world go round.
The need for money is real for our own lives and the world we’ve created. As far as our hopes, goals and dreams are concerned our income is as vital as the air we breathe. Considering the life-giving and sustaining importance of our money, getting the most out of it every day should be our #1 priority.
| So what does the bank do with our deposits? |
Some people think the bank “loads their card”. That answer is 100% wrong by the way. Banks invest our money in interest bearing, moneymaking activities. They make money with our money. This is their business model and this is what they do. They put our money to work somewhere in the economy the minute the deposit was made. Like an employee, they don’t want anyone sitting around not doing their job.
So what is the magical financial strategy or principal at play when the bank ‘invests’ our money for their own gain? It’s called leverage. Bank’s simply leverage our money for financial gain just like those who invest in a 401k. Just like those who leveraged a down payment to buy a new home. Banks take our deposits, invest them in the economy and pocket billions in profit.
What do we get? We get a checking account. We get a place to deposit our paycheck and a means to pay our bills and expenses. That’s it. Is this fair compensation for providing financial support to a multi-billion dollar business model? How is it we provide the fuel to their riches, but see none of the spoils? Unfortunately, we take a subservient role and accept the fact that we’re just pawns in their big-money game. This isn’t new. This has been the banking and borrowing model for decades, for generations. And this model IS the cause to our financial ills.
What else do we get out of the relationship? We get told–‘advised’–how to managing our money and finance our dreams. Their low-rate, low-payment advice isn’t necessarily bad or wrong and might appear to be in our best interest, but in reality we all know whose interests are best being served.
Let’s recognize this relationship for what it really is; a power play over our hard earned income and its capacity for financial gain. Traditional banking and borrowing is a one-sided, imbalanced relationship. Follow along and your financial goals will be held at bay while the goals and dreams of someone on the 50th floor are coming true.
| So what’s the answer? What can we do for ourselves to reverse or at the very least equalize the relationship between our bank and our money? |
Leverage
Remember, leverage is the principal a bank employs when they put our money to work. You can do the same thing with every paycheck, but as ordinary consumers, the debt-side of the ledger is the only opportunity we have to practice leverage on a day-to-day basis. Pay close attention! Understanding the concept of leverage on the debt side of your life will forever change the financial trajectory of your life and your family’s life for generations.
When you contribute to your 401k every month you are leveraging a portion of your income into the stock market or investment vehicle of your choice. Leverage works the same on both sides of the ledger through the results move in the opposite direction. On the asset or investment side of the ledger as the balance grows through monthly 401k contributions you earn more as the balance grows. On the debt side of the ledger the more we owe the more we pay in monthly interest.
In many cases, we are paying more per month in interest on debt than we are earning on our investments. The lower the debt balance or the less we owe the more we save in interest. The outstanding loan balance—not the interest rate–is ultimately responsible for how much interest we pay.
The more money leveraged on either side of the fence the faster financial goals become reality. The problem with the traditional way of doing things is too much of our income is paying interest for way too long. When breaking down and analyzing traditional banking practices the life-long process of building wealth or paying off debt is revealed. They’re just too little income working on our behalf.
The biggest drain on our paycheck—beyond taxes—is payments on debt. The debt isn’t the problem. The interest rate isn’t at fault. It’s the terms of repayment. 5, 10, 15, 30 years to pay off debt? Leveraging more income against debt could eliminate years and years of monthly payments. Controlling and accelerating the repayment of debt should be a top priority. The asset side of the ledger will grow exponentially when leveraging that newfound money on the asset side of the ledger.
| So how do we leverage more of our income on the debt side of the ledge–to save interest and accelerate payoff–without losing the ability to pay our bills and buy groceries? |
The LOC
The answer to saving interest and accelerated debt repayment is a Revolving Line of Credit or LOC! A LOC is not the anti-christ of finance. A LOC is the most powerful financial tool ever devised. Its special power comes from the revolving door. The revolving door of a revolving line of credit creates liquidity. Liquidity means you have the ability to move money in and out of the LOC just as free and easy as a checking account.
Why is this important? Because that revolving door gives you the opportunity to leverage 100% of your paycheck against debt and still have 100% access to what you need to feed the family and keep the lights on.
You get to have your cake and eat it too! Like a banker you invest your paycheck for financial gain. In this case the gain is interest savings. The savings is created by reducing the outstanding balance with the paycheck. These tax-free interest savings are converted to principal repayment to aid in accelerating its demise. That beautiful revolving door is so special and so powerful it’s where the power swap between you and the bank takes place. You become the master of your domain. It’s a liberating experience.
With liquidity and the LOC we now have the capability to leverage 100% of our paycheck against debt—to save interest and accelerate payoff—without losing access. When we take our income out of a checking account and put it in a LOC we take the power out of the banks hands and put it in ours. When we take our money out of their hands we reverse the polarity of benefits. We took away the fuel that feeds their machine and now it’s feeding our financial machine.
The bank cannot access available credit in your LOC so we’ve eliminated their ability to leverage our income for their own gain. The power swap is complete! Now we’re banking like a banker. We’re now leveraging our income for our financial gain. More importantly, we’ve realized banking like a consumer is a fool’s game.
Bottom Line
It’s your money and you should get more from your participation in the most powerful industry in our economy. You can get more and you don’t need anyone’s permission to do it. The best news about banking like a banker is you don’t have to change anything within the current banking system. Everything you need is already out there, but there is more to the bank-like-a-banker story than understanding the basics of leveraging your income and banking from a LOC. Doing it right and getting the most from a better banking model will take a little education, guidance and support.
A good place to start is our Equity Optimization ebook. This is an easy to read and easy to understand introduction to Equity Optimization. After reading the ebook you can get a closer look by spending a little time with one our Financial Strategists. They will answer your questions and give you an opportunity to see customized illustrations using your actual budget to see if this is the right strategy for you. If you’re not a good candidate we’ll let you know.