You read that correctly! I want the smallest bank account possible—just enough to cover monthly expenses. Why? It's not because I took a vow of poverty, or even because interest rates are so low. It's because I don't want to pay the opportunity cost of those dollars. Opportunity costs are the lost benefits when one alternative is chosen over another. So what other opportunities are there for savings? Plenty!
Have you ever considered how a bank makes money? What are they selling? That's right, money! Whether it is a loan at interest, a CD, or a transaction, banks make the majority of their money by moving money. (We recognize banks have multiple additional revenue sources such as fees, service charges, and even investments. We've simplified the concept for the purpose of this article.)
We discussed this concept in our article The Second Rule of Banking. Money must be put in motion to grow. A bank can pay interest on deposits because they have taken those dollars and put them to work through loans, etc. Now take a step back and consider the situation carefully. If our deposits are "in the bank", are they stagnant or are they in motion? For all intents and purposes, from our perspective they're sitting still. Actually their value is diminishing because they aren't even earning enough to keep up with inflation! However, from the bank's perspective those dollars are in motion—they weren't just sitting still in our account, they were lent out almost immediately, earning interest!
What if we could trade places with the bank? What if we could cut out the middle man and earn all the interest our dollars are capable of earning? ...What if we could still have access to that capital, yet never interrupt it's growth? Is it starting to sink in? I want the smallest bank account possible because I want my dollars earning the interest that the banks would normally earn! I want that money in motion for me!
The process of trading places with the bank may be a foreign concept, but it does not have to be difficult to understand. Get in touch with us today for your free personal wealth consultation and we will be glad to walk through these concepts with you.
Learn more at www.livingwealth.com.
The information presented here is solely for informational and educational purposes. Dan Watkins is not a registered financial adviser. He can be reached at: dan.watkins@livingwealth.com.