Understanding Banking: Are You a Partner or a Pawn?

The Proposal

Let’s do a thought experiment. You have an acquaintance by the name of Jim who would like to open up a food truck, and he has asked you to provide the start-up capital he needs for the business. He needs $30,000 to buy the truck, fit it with a kitchen, and buy supplies. He has done his homework, and believes that this food truck can produce $50,000 in annual revenue. You know Jim to be a savvy businessman, and are confident that his projections are realistic.

Now, Jim has the money to start, but it's in a high-yield savings account, and he wants to keep it safely there in case of an emergency. He promises to pay repay you over time with 2% on the money you have lent to him, but he will keep all of the profits from the business.

Does this sound like a good deal to you? You provide the capital, but get no ownership stake in the business at all. You get your money back plus a tiny return, but Jim builds wealth. Your capital is at risk, his is safely tucked away.

Would you take this deal?

In Reality...

Ironically, millions of people are signed up for a similar arrangement, and it's not seen as unwise or extreme. It's actually called normal, and people do it without even thinking. This is the business model for the traditional commercial bank, in which participants willingly and happily finance the profits of the bank for...a fraction of a percent? A free toaster? We earn 0.05% interest while the banks use that money to fund loans at 7%+? What do those profit margins actually stack up to in the real world?

In 2023, a typical depositor with $10,000 in big-bank checking account made about $5 a month. That $10,000 was used to fund a mortgage that made the bank $700 in interest. Think of that at scale--thousands of deals for much more than just that $10k. That year, Chase Bank had near zero interest rates paid out to customers, and used their depositors' dollars to fund loans for a reported a profit of $49 BILLION. They shouldn't be giving us toasters, they should be giving us cars!!

In a nutshell, this is what happens:

• We willingly give the bank all of our money.

• The bank loans out that money to other customers.

• The other customers repay those loans with interest to the bank.

• The bank keeps their "Tier One" capital safely stored in guaranteed investments.

They're "banking" on both fronts: both the interest they're making on loans AND the growth on their capital reserves. No wonder banking is the most profitable business in the world.

• What is their product? (money)

• Whose money are they loaning out? (yours)

• What if you need to borrow some money? (get in line, have your paperwork, and be prepared to pay up--ON TIME!)

• Who gets the lion's share of the profits? (owners/shareholders of the bank)

Banks win big because they're built on your capital.

Banking Redefined

I'm not here to villianize the banks, but simply to point out that they really don't have an incentive to let you know that you could set up a similar system for yourself.

Before we look at that possibility, let's get a working definition of banking. Banking is simply the movement of money: deposits, withdrawals, loans, and loan repayments. As long as we're alive, we'll be banking. It's not even limited to finances! We make deposits (or captitalize) into relationships, into our education, and into our career. What we get out of all aspects of life is based upon what we put in. You are already a banker!

Finances are no different. You will be banking with someone as long as you're spending money. The question is, who is controlling and profiting from your banking activity? Are you a partner in this business you're funding...or just a pawn?

I'll let you think on that.....

So, if we were to establish a new banking system, one that had our dollars working for us instead of someone else, what are some characteristics that would be desirable? We would want to prioritize the principles:

1. Mutuality

2. Control

3. Certainty

   
   

Let's unpack these and see why they matter.

Mutuality: Win/Win Ownership

In any business or financial arrangement, it's important that both parties are sitting "on the same side of the table." If I win, you win. If you win, I win. Any other sort of arrangement introduces a zero sum game where our interests are not aligned. If we can create a win/win for everyone involved, it creates a peace of mind in doing business that our interests are mutually beneficial.

A huge part of mutual alignment is mutual ownership. Ideally, we would want to be owners in the banking business that we created. This would entitle us to participate in the ongoing profitability of the company that we co-own, not just a one-time perk or "free" gift.

Control: Your Business, Your Terms

If we are owners, having a level of control would be an obvious benefit of that ownership. In the banking sense, we would want to be able to carry out our banking activities on our terms. That would look like flexibility in how and when we capitalize, freedom to borrow without jumping through the hoops of an approval process, and the ability to pay back those loans on a schedule that we decide.

This would also mean access to our capital at any time, for any reason. No credit checks, no loan applications, no going to a loan officer to make the case for why we need the money.

Certainty: A Solid Foundation

If we were to build our own banking system, we would want to make sure that we were building on a solid foundation. We would want partners who had a long track record of success--not just decades, but over 200 years of a profitable business model. We would want guarantees that our capital would continue to increase--steadily, predictably, and by contract, not just hope.

That type of certainty brings an ability to leverage without worry, as the risk of borrowing against an asset is only present if that underlying asset can go down in value. Can you imagine the power of your capital if it could increase on a guaranteed basis AND you had the ability to borrow against the value of your system at any time for any reason without interrupting the compounding increase for the rest of your life???

But wait--isn't that exactly what bankers do? They store their capital in safe, guaranteed assets while they use other people's money to conduct their day to day business. The compounding of their assets is never interrupted because they're using someone else's capital....yours! Hmm.....

The Potential

Put these together and the sum is even greater than the parts: we're talking about true financial freedom. Not in the sense that you will be rich beyond measure, but in the sense that you are free from constantly thinking about money, hoping it lasts, or longing for the day when you can finally enjoy all the fruits of your hard earned labor. If it sounds too good to be true, it's not. This kind of freedom is what Becoming Your Own Banker® is all about.