| The difference between financial independence | | | | so they can use your money). |
| and financial servitude is this simple principle; Be an | | | | How much money the bank made, (using your |
| owner, not a loaner. The average American's | | | | money). |
| failure to understand this principle, (and live it), has | | | | If the interest rate on my loan is 8%, by the |
| sown the seeds of a stark financial future for | | | | time I make all the payments to pay back the |
| ourselves and our families. | | | | loan, I will have given the bank $1202.40. That is |
| In my earlier article, "The True cost of a | | | | the $1000 I borrowed, (the money they are |
| Guarantee", (see link below), I discuss the effect | | | | letting me use), plus $202.40 in interest, (fee to |
| that inflation has on the value of our money. In | | | | use the money). If the bank gave you $131.41, on |
| this article, I discuss the difference between | | | | the $1000 in your CD, that means they put |
| investing, and putting money in a bank's 5 year | | | | $70.99 in their pockets. Remember, they made |
| Certificate of Deposit product that had an | | | | that profit using your money, not their own. By |
| advertised an interest rate of 2.5%, (two & | | | | letting the bank act as the "middleman" you give |
| one half percent). | | | | up some of the earning potential of your |
| Loaning your Money vs Investing | | | | investment. |
| In our current day and age, we have the | | | | Be an Owner |
| opportunity to participate in the ownership of | | | | When you put your money into the world's |
| businesses and national economies around the | | | | market system you would be, in essence, a part |
| world: either through "self-directed" investing, | | | | owner of the world economy. By owning a piece |
| (web-based stock/bond purchases for example), | | | | of the "pie", (instead of loaning money to the |
| or through brokers/agents. | | | | bank), you have the opportunity to have your |
| Here I would like to illustrate the difference | | | | money earn a higher return. |
| between letting the bank use your money, | | | | Even over these financially turbulent last five |
| (loaning it to them), and putting money directly | | | | years, a conservatively mixed portfolio could have |
| into the U.S. or world markets, (be an owner). | | | | earned a return of about 4 to 6 %. (Two key |
| What happens to the money? | | | | words: "mixed" and "conservative"). That means |
| When you put money into an account at the | | | | your $1000 could have earned from $216.65 to |
| bank, it doesn't just sit around. The bank takes | | | | $338.23. That is $85 - $207 more than you would |
| that money and invests it so they can get a | | | | get loaning your money to the bank. |
| return, (income). One of the most common ways | | | | But what about the guaranteed deposit? What |
| Banks earn income is to lend money and charge a | | | | about the guaranteed interest rate? I recommend |
| fee, (interest), to let the borrower use the | | | | reading my article "The True cost of a |
| money for a period of time. | | | | Guarantee" to answer those questions. |
| To use a very simplistic example: If I borrow | | | | So what are the choices? |
| money from the bank to buy my car, the money | | | | When it comes to investing in the global economy, |
| they give me is the money depositors have put | | | | no one can promise that you are going to get a |
| into their accounts. | | | | certain rate or return, or even that you won't |
| Letting them use your money | | | | lose some of the original money you invested. |
| Let's take that example and look at it a little | | | | So here are the options: Choose to follow the |
| closer. Today you go into the bank and put $1000 | | | | "better safe than sorry" philosophy, and almost |
| in their 5 year CD and they promise you their | | | | surely lose to inflation, OR, take a small chance in |
| advertised rate of 2.5%. 10 minutes later I go into | | | | the world market place and enjoy an opportunity |
| the bank and get a $1000 loan to buy my car. | | | | to earn a much better return. I think I'll place my |
| The money the bank lends to me is, in essence, | | | | bets with the world. |
| the same money that you just deposited. | | | | **(The above information, including the amounts |
| The loan terms state that I have to pay back the | | | | and values stated, is for educational and illustrative |
| money within 5 years, and the interest rate they | | | | purposes only, does not constitute any type of |
| are charging me is probably about 7 - 10%. We | | | | projection, warranty, or guaranty, and is neither a |
| already know that after the 5 years is up, your | | | | solicitation nor endorsement to buy, sell, or |
| $1000 deposit will have earned about $131.41 in | | | | transact, any type of investment or financial |
| interest. (Interest is the fee the bank pays to you | | | | instrument). |