Financial Strategies – The Importance Of Capital

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Financial Strategies – The Importance Of Capital

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It is critical that the American public begin prioritizing their personal finances. The average family spends 34.5% of every dollar earned on interest paid to another institution. Interest to pay for credit cards, student loans, car loans, mortgages, and everything else people buy. The focus is on the rate of return but if we can show people how to avoid giving financial institutions 34.5% of their income, the rate of return becomes a moot point.

How long could a business run without adequate capital? Not too long. Each household’s personal finances is indeed a business, one that is all too often not treated as one. That is the reason people find themselves constantly at the mercy of the financial institutions – who want to give you money when you don’t need it and won’t give you any money when you need it. Who is in control here? I prefer to see each person in control of their finances and be able to make the choice, do I want to use my capital or someone else’s.

Remember that when you use your capital you are not only giving up the capital, but whatever that capital could have earned for you over a lifetime – it’s gone forever. As I’ve discussed with many of you it makes sense to try and become your own banker for many things in life and pay yourself back (not with 401(k) or pension loans.) Most people have a much greater need for an understanding of the banking system in this country than almost anything else. The banks are arguably the most important business on the planet. What other businesses could survive without banks? None, zero, zip zilch. That is why in every town in America the bank has a building made of brick, Granite, or Marble and most other businesses have buildings made of particleboard. Banks control the capital and the golden rule is those with the gold make the rules.

Of the three types of people – spenders, savers, and wealth creators, only the wealth creators understand how to use capital. Spenders have a very frustrating financial life, they are continuously spending more than they have and always working to get their head “above water.” Savers have some discipline and will wait to buy things, then raid their savings or investments to buy the thing and transfer away from the money and the opportunity cost forever. Wealth creators understand that in order to get ahead you need to avoid transferring away most of your income and capital to others. Remember, there is a finite amount of money in the world, it is simply a question of how much can you get under your control.