What do banks do to become wealthy? In this episode, I'm going to teach you how
to become your own banker and do at the banks and credit unions and major
financial institutions do to create wealth.
I'm Doug Andrew. I've been a financial strategist for 47 years.
And I've taught a lot of audiences and many readers of my books and on my video,
my national radio show about the dynamics of money. And this is a common
question a topic I love to talk about how to become your own banker and do
what the banks, credit unions and other financial institutions do. Now, basically,
there are 3 things that you can do with money. You can spend it, you can lend
it or you can own with it. I guess you could give it away. But spend, lender,
own. Now, a lot of times when I say that people go, "Well, okay. I know how to spend
it." Yes, too many people spend too much of their
money instead of living on less than what they earn and saving. But when you
own with it, that sounds like well that's the best. Let's own with it. I want to own
my home. I want to own these stocks. I want to own my business. Yeah, that's
great. But they think that money in a lended position isn't as good. Actually,
this is what makes the world go round. When people say, "Doug, what do you do with
your money?" i double dip, okay? I own and I loan on the same money simultaneously. So,
let's back up and simplify this. When ever you or I, if we were to put our
money into a bank or a credit union or even a life insurance company, it's in a
lended position. Now, are they just a benevolent institution paying you
interest? No. What are they doing with that money that you're loaning them?
Because when you put your money in a savings account or even a checking
account, they get to use that money while it's in there. And they get to account
that they can use the velocity of that money.
It's OPM which means Other People's Money. And this is what makes the world
go round in the parable of the talents in the Bible. Matthew chapter 25 and Luke
19 talks about the parable of the pounds. What you're trying to do is use a
win-win scenario between someone who's paying interest
than someone who's earning interest. But you create a win-win. So, if I put my
money in a bank or a credit union, they are paying me interest. My money is being
loaned to them. And what are they doing with my money they're going out and
investing it or loaning it out again let's say at 5%. So, let's do
the math. From 2000 to 2020, in that
20-year period, most banks and credit unions were only paying a pathetic 1
or 2 percent interest on the average. So, every million they borrow from us, if
we collectively passed a hat around and we deposited a million bucks in the bank,
it's in a limited position. And they're paying us 10 to 20 thousand dollars
of annual interest on that. But they're turning right around and loaning that
back out again at 5 to 10 percent. So, if they're borrowing at one and they're
loaning out at 5, that looks like it's 5 times, right? It's not just 4%.
I mean sometimes I've heard financial advisors say, "You will do all
that for 1 or 2 or 3 or 4 percent." Well, banks sure do it. They'll pay
10,000 and make 50,000. They'll pay 20,0000, 2-percent
interest and they'll make 10%, they make 100,000. How much
more is 500,000 than 100,000? How much more is
50,000 than 10,000? It's 500% more. This is what
banks and credit unions do. Now, many of them in 2008, when the economy was really
hurting and a lot of people lost up to 40%, you know the federal
government asked the 5 major banks where they had their money their tier
one assets for liquidity and safety? Do you know where it was? In bank-owned life
insurance contracts, in insurance companies. Because insurance companies
are a trillion dollar industry. They're the backbone of American, the backbone of
the world. So, see... Banks were borrowing our money at 1% and they're
putting it into insurance companies and earning 5%. They don't even use
the index strategies that I use that I teach in my books. So, would you hire an
employee for 10,000 that made you an extra 50,000? That's what the
banks have been doing. They've been making 500%. Now, they have
overhead costs and so forth. But that's what banks do. You can do the same thing.
You can have interest work for you because I've heard a lot of people quit.
Well, there's 2 kinds of people in the world those that pay interest and those
that earn interest. And I go, "No, there's a third kind of person in the world." Those
who are super mega wealthy and savvy, they learn when it's wise to pay
interest to make more interest. Nobody looks at a bank like they're evil. They
actually, they pay interest to make more interest. That's what the mega wealthy
multi millionaires and billionaires do. They pay lower interest and make higher
interest. So, they're willing to borrow and pay a lower rate and make a higher
rate. That's called an arbitrage or a spread. It's what makes the world go
round. So, I own assets. I own my house. But on my
house if I borrow money on a mortgage and it's a 3% interest and
it's tax deductible, it's only a net cost of 2. And in my Laser Fund portfolio, I
make 10. How much more is 10 than 2? It's 500%. The banks have
been making 500%. I've been making 500%. But
this is how you can become your own banker. Let me give you a little secret.
When I share this with audiences they sit there with this
deer-in-the-headlight look. So, I'll just go so far with this. But see banks, credit
unions, insurance companies; they borrow our money. When we put money in those
institutions, it's in a lended position. Now, whenever I go to use the money in my
insurance contract what I call the Laser Fund, I can borrow my own money or I can
withdraw it. If I withdraw it, it is no longer there to earn interest.
That's the dumb way. The smart way is if I want to go withdraw, instead of
withdrawing, borrow 100,000 or a million. I borrow it out and they'll
charge me 2% interest because I don't want to pay tax on it. And the IRS
says, "You do not have to pay tax on loan proceeds." So, by changing the nomenclature
to borrowing, I borrow out 100,000. I borrow out a million. And the
insurance company charges me 2%. So, on a million bucks, that'd be 20 grand. But
they'll turn around and credit me 2% on that money that I borrowed. If
I borrowed out a million, they're going to pay me 20,000. So, they pay me
20,000 and they charge me 20. It's a wash. But do you know what? Many times,
they'll give me the choice. if I borrow it out, they might charge me 5%,
but they cap it. It's no higher than 5. But if they can charge me 5%
or fifty thousand, they'll continue to credit me whatever the index earns that
year. There are many years I've earned 10%. So, I borrow and they charge
me on a million, 50,000. But they credit me 100,000. I made an extra
50,000 net while I was using my money for other purposes. Do you know in
2017, many of our clients following these strategies borrowed money at 5%
on a million bucks that's that's 50 grand but they made 25% that
year on the money even though they were using it for business purposes. So, they
made 250,000 minus the 50. That's a net of 20% or
200,000. That's what smart savvy people do. See, you're able to own and
loan on the same asset. When I own a home or a commercial building, the reason why
I will use a mortgage is because I can borrow the money (let's say) at
3%. If I borrow at 6% tax-deductible, it's a net cost of 4.
And many times in my lifetime, I've earned at least 8% on my
Laser Funds. How much more is 8 and 4, it's 100%. See, I'm
owning a house or a property and I'm also earning 100% on my
money whatever that does. The property goes up or down in value it's
it has nothing to do with how much equity is in that property. But I
separate the equity to earn 100% even up to 500% rates of
return. This is how you can become your own banker. So, when you understand
sometimes it's wise to pay interest in order to earn higher interest. It's the
same decision an employer makes when they pay
an employee 50,000 a year in hopes that the employee makes them an extra
100,000. Would you hire an employee for 50,000 that made you an extra
100? I'll do that all day long. That's a 100% return on employment cost
or 100% return on equipment cost if you bought a widget machine for
20,000. And that widget machine made you an extra 100,000. That's a
500% return on equipment cost. Are you beginning to get it?
So, in my various books in educational video, sometimes I'll talk about the
3 marvels of wealth accumulation. Number one is compound interest. A lot of
people think they have a handle on that and they usually don't. But yeah, compound
interest. But the second is tax-free compounding. This is what Rothschild said
is the eighth wonder of the world is tax-free accumulation of money
compounding. But the third marvel, a lot of people don't understand it's safe
positive leverage. The ability to own and control assets with very little or none
of your money tied up or at risk in that asset. And that's where I've been able to
become my own banker. Pay a nominal interest rate and earn a higher interest
rate. Because this is what makes the world go round. This is the parable of
the talents. And that's why the harshest words in that parable --thou wicked and
slothful servant. I'm going to take it from you and give it to the one that has 10.
You should have put your money at least in the bank with usury. Well, what are
banks doing? They're paying interest and they're learning it back and earning
higher interest. We need to multiply our talents by doing it the right way and so,
I hope that you're beginning to understand that you can actually own and
loan on the same asset by becoming your own banker and understanding how money
really works. So, if this is tweaking or even peeking your interest into some
ideas that you've thought about but you've never really understood it, I
would recommend you watch this episode. And also explore some of the many books
and articles I've written about how to become your own banker. And then you can
be empowered and move from just being a striver to a
thriver. Because you understand how money works
how it can benefit you the best.