Banks are in the business of exchanging money for interest. It is interesting to know that the bank’s money can be used either to OUR benefit OR to the benefit of the bank.
Yes, you guessed it; we want to use the bank’s money to our benefit, not theirs. Unfortunately, the majority of us use the Banks money to their benefit because we do not understand the basic principle of money or how the bank works and because we were never taught how we can use the bank’s money to our advantage with interest-free. We are being told by our teachers and the system we grew up in to go to school and get a high paying job without realizing that choosing this path will put us into the highest tax bracket. The truth is, there is nothing wrong with taking this path AS LONG AS we would have all been taught about our options in the early age at school. Most of us did not have a choice simply because we did not know any better. Traditional and current school system’s do not teach our kids things such as: how to properly handle money, teaching them about credit cards or perhaps a little bit of taxes. By the time we become adults and get our first paycheck, we are trapped in the cycle that never ends for most of us. Trying to keep up with bills, paying mortgages, loans, car payments and others. They are a large number of retired people at this time in their 80s still paying off their mortgage, and that is sad and scary. The middle class is disappearing year by year while wealthy people continue to benefit. I personally agree with many financial and successful people having a similar view on many topics we cover.
President Richard Nixon took us off the gold standard in 1971 when the US Federal Reserve became the world’s largest bank. What that means is that the dollar is no longer backed by gold. As a result of this act, the value of our money keeps depreciating while the prices are going up at the same time as the US Government keeps printing more and more money for the entire world. Money is no longer backed by gold. In addition, the money after 1971 is losing value which is why people that are saving money are really losing money and are getting further in debt. The inflation rate is the main reason (in my opinion) why saving money today is NOT the smartest thing to do. Our current inflation rate as of this writing is at 2.1% yet the banks keep paying interest on a little over 1%.
I am not sure how accurate this statement is, but I once read that the US dollar has lost nearly 80% of its purchasing power in past years.
If you put 100,000 dollars into a bank today earning a 1% return, the inflation rate of 2.1% will out-pace the yield. Did you not get the point yet? No problem. Let’s look at the following example: Someone with two million dollars needs to find a place to keep his money. There are many options available to everyone today. The problem is, how does he really know what is the best thing to do and how to properly handle his money? Let’s look at several options people chose today.
Option number 01:
The first thing an uneducated person will do is keep the money in the bank.
If you have 2 million dollars in the bank today, the value of your money keeps losing value by 2% every year. Ideally, you would like to find the return that will at least cover a 2.1% inflation rate to avoid losing the value of your investment.
Another problem I see with keeping the money in the bank is that each bank will only insure 250,000 dollars according to the FDIC. That means if you have 2 million dollars in the bank and the bank defaults (files for bankruptcy) the person would possibly lose the remaining 1,750,000 because it is uninsured. Even the $250,000 that is insured would be paid out in smaller installments if the banks default.
Option number 02:
Finding a good financial advisor can also be challenging simply because they (in many cases) will advise on investing your money in products they earn the highest commissions on. Yes, that is exactly what I am stating. They often (not always) look at their best interest – not yours. You don’t believe me? Then ask yourself why has your financial advisor never told you about Tax Liens Certificates for example. The answer is simply because it is against the law to collect a commission on Tax Lien certificates. They would simply not make any money off of you. Now, I am not saying all financial advisor’s look for their own interest, not yours, I am simply implying the fact that it is not easy finding a good quality financial advisor.
Option number 03:
Investing money in a stock market or Forex is perhaps the most popular way for the majority. The internet is flooded with lots of people who claim made millions of dollars trading the stock market or Forex trying to sell you packages promising how easy and successful you can become by using them. I must admit, it is very tempting to follow these stories and claims promising nice returns. The truth is, there is a small percentage of people that really make serious money trading. It is also very difficult to prove the accuracy of someone’s track record because you never know how many accounts that person is trading. For example: Someone can show you an account that earned 28% in one month, however, he may have three other accounts he does not advertise that may have lost 31% of combining loses. Just things to keep in mind.
Option number 04:
Get financially educated. The best investment you can ever make is investing in yourself. Although the internet is flooded with millions of articles, some of them are misleading and inaccurate, there are some very good and powerful websites you can use to start educating yourself by improving your financial IQ. It is critical at this time more than ever for all of us to understand the basic principles of economic changes / cycles and how we are affected by them. For example: why could we get 10% annual returns (yield) in banks 20+ years ago while it is currently only below 1% nowadays. Things are definitely different today compared to 10 or 20 years ago. Things will be different in 10 or 20 years from now compared to where we are today. This is why we all have to learn to learn things such as how to beat the inflation rate, how to increase our purchasing power and how important it is to make smart financial decisions. We have to educate our self-about different investment vehicles and all risks associated with it. There is no such thing as an investment with NO RISK. Each Investment involves some kind of risk, however, knowing how to leverage it and minimize it is the key.