How to Lend With Security And Build WEALTH

Whoever controls emotional money accumulates the wealth. Both of those methods are permanent transfer away from you. Every payment you make is deposited into someone else's bank.

So again, I just wanted to go on and really get into the fundamentals of banking. So banks are very good. They lend with security rather than investors risk. And I always get a kick out of that because if you walk into their bank as a rule and they talk to you about investing, they're usually, you know, encouraging you to invest with risk or something they don't do. And so who's in control of the money for the majority of Canadians? Well, it's the bank. And what's the underlying asset to the bank? You say, well, if we go back and we think about that mortgage example that it just went through, their focus on that stream of payments that's the asset to the bank. They don't really want your property, like they just assume you keep that. They're interested in that stream of payment. That's where they get their value from. So just so you know, whoever, whoever controls emotion of money accumulates the wealth. Now we're just going to do a bit of a walkthrough of how banking, commercial banking works for you today. So first off, we're going to look at a deposit and we're going to say that you deposit $50,000 into the bank. Now just to help you with this little piece, if you put $50,000 into a bank, is that an asset.

For you or a liability for you? Well, the answer to that question is that's an asset. The bank's going to give you a slip of paper. Most of it's all done electronically now. You can go and look at it and says they owe you $50,000. Now that $50,000 that was deposited into the bank, is that an asset to the bank or a liability to the bank?

Well, that's a liability to the bank. They owe you that amount. So that's just a bit of a background about what are assets and what are liabilities as we look at this. Because I'm going to look at the next phase. What does a bank do with fractional reserve banking as we know it? They take and lend money to others based on that deposit that you made. So here's a case where they lent money to someone to buy a home. So when you buy a home.

The person that took out this loan.

That becomes an asset to the bank and for the person that took out the loan, that's a liability. So I just wanted you to understand those two differences. There now, next step, right, you buy the home, the money flows from you to the seller. And what does the seller do with that money? Well, they put it right back in the bank. Vern did a great job of speaking about there's only one pool of money in the world. So it doesn't matter if, you know, you took a loan from RBC and the seller was, you know, used the TD for bank, it's still going back into that same pool. Now, the banking system, then they take that money again and they put it to work. This is just an example of, you know, lending to, for someone to buy a vehicle. What does that dealership do when they get paid? Well, they don't have a vault in the back. They put the money right back in to the banking system. And everything basically now is done electronically. Not too often even write a check anymore. Everything pretty much done electronically through this whole process. Now, other ways the banks get a payment, stream of payments coming their way is by lending for things like home and house remodeling. And what happens then? Well, when you pay the contractor, what does the contractor do with that money? Well, he puts it right back into the banking system. Now, I think you're starting to see a trend here. This is what, how banking works. And you know, that's what banks are very good at. They're in control of money and they put that money to work and that works. And I don't care what percentages you use in here, I can tell you one thing as a rule of thumb is they're always going to pay less interest than they charge. So if we just look at this simple example that we've got laid out here, the difference between all these numbers would be 20%. But when you think about it from a percentage, how much better did the bank do than the person that you that deposited this? It's really involves this calculation. You take the 20, you divide it by the 2, and it's 1,000% more than the depositor. Now, there's a lot of things a bank had to do. I give them, you know, they had to set up their whole process. They had to have build capital. At some point they went to a lot of trouble, get structured in a way to be able to do this. But what they do with it is they create income and a very good rate of return for their shareholders. So here's what I want you to know.

You could be the banker and with this process, that's what we're going to teach you. Now, the next thing I wanted to go through with you was this simple little slide. And this is about two kinds of people. First, it's the debtor, and second, it's the saver. And Vern did a great job of touching on this before, but what he was saying is that whenever every decision you make in life, it's a financing decision. That's right. You're either paying money to someone else or you're giving up the interest you could earn. So everybody that sits here on the debtor side, as a rule, understands that there's interest as part of their payment. So we're going to just look at an example. We're going to say this person took a vacation, and so they decide, okay, we're going to borrow and go on vacation. So that's what they did. They borrowed them out to do this vacation. Then they started paying it back, and they paid it back over time, and they're pretty much aware that part of that payment was interest. So people get this pretty well. Next time they take a vacation, they do the same thing and they pay it off diligently and again, go on another vacation, take another loan. And there's Canadians that do this and do it this way. Now we're going to talk about the saver, and I kind of like the saver, and I really like this behavior in a lot of ways, because before they take that vacation, they make a decision to save. I think that's a pretty good way to go about things. But I'll teach you a couple things from this. So here's an example. Someone saving for the vacation, they get to the point where they have enough money and they go on the vacation. Bang. Now their bank account goes back to zero. Now, that's a. You know, they achieved their objective. They got their vacation so good on them. That was a great outcome for them. And, you know, we're not going to tell you to stop living. We're not going to tell you to stop taking vacations. We're just going to help you understand what even this behavior, which is a really good behavior, because you've really made, you know, thoughtful about how you're going to make a difference in your life. And you are convinced that if I save first and then spend, it's better than the other way. And it is. But the thing that I want to point to is when this person gets to here, what do they have to do? They have to save again for the next vacation. And the problem is that when you think about this, this was going along really nicely. They built up some value and they get to here. And what do they do? Well, they cut that off. They cut it right there. They kill the growth of their money right here. They killed the growth of their money, and they used it. And this infinite banking concept of becoming your own banker here in Canada, you can change that narrative, and that's what we're going to teach you today, is that if you use this process in your life and you start to build equity, you don't have to kill its growth. It can keep on growing, and you can still access it to use it for the things in life. So I just wanted you to understand there's a debtor and there's a saver. But at the end of the day, if you do it the conventional way, both of those methods are a permanent transfer away from you. Every payment that you make is deposited into someone else's bank.