This is the second in our seven-part series on various financial topics your advisor is not telling you. Financial institutions have an agenda for your money.
Most major financial decisions you make must be made through financial institutions. You can’t change the rules stipulated for the game. You can, however, decide how to live and work within the rules and use them to your advantage. To do this, you must understand the Four Rules of Financial Institutions.
The traditional financial institution has four core rules that they operate by:
- They want your money
- They want your money systematically
- They want to hold onto your money for as long as possible
- When the time comes, they want to give back as little as possible
Let’s look at a bank, for example. How does the bank make money? Banks do not sell goods or services; they act as intermediaries between you and your money. For any bank to generate a profit, they need your money. This money at the bank allows the bank to loan your money to others.
If a bank’s objective is to have control of your money, how do they incentivize you to give it to them? They offer interest rates, account sign-up bonuses, etc. Once the bank has your money, the objective is to hold onto it for as long as possible. This allows them to lend money and generate profit for the bank. Banks incentivize longer investment periods by offering higher interest rates the longer you keep your money with them.
Why is this important?
What financial institutions do with your money is entirely contradictory to what they tell you to do with your money. Institutions glamorize the “Miracle of Compounding Interest,” but they do not follow this principle. Financial institutions keep the money they have in motion.
At Ross\Johnson, our planning approach incorporates concepts and ideas that financial institutions use into the personal planning process. We help you use the velocity of money in motion to get a dollar to do more than one thing and create maximum wealth for our clients.
You can’t change the rules of financial institutions. But you can change how you live within them. Understanding the rules of the game is something all individuals must do before making important financial decisions.
At Ross\Johnson, we help our clients make the very best financial decisions for themselves and their families. That includes being transparent about the types of plans and investments being considered. We’d be honored to have you as a client. Contact us today to get started. If you enjoyed this article, consider sharing it!