Decentralization and Infinite Banking Concept Part Two: The movement of money.
Fractional Banking is a banking strategy which allows banks to make money by money by moving it. You are not a bank, but you can still move money to achieve similar goals. But I can show you, in concept how you can use this principle for debt reduction.
Example of Fractional Banking practice.
First, Adam deposits $1000 in his savings account at the bank, at 1% per year or $10.
The bank is only required to keep 10% of deposits on hand. It can loan out the rest.
The Bank loans $900 of Adams money to Bob, at 10% per year or 90$ pay for 10$ cost.
Second, Bob deposits the $900 dollars in his account at the same bank.
The Bank is only required to keep 10% or $90 in Bob’s account, $900-$90=$810.
The Bank loans $810 dollars of Bobs money to Charlie at 10%, that’s $81 per year.
Third, Charlie deposits his $810 in his account.
The Bank is only required to keep 10% so $81, $810-$81=$729
The Bank loans Daniel $729.00 at 10% or $72.9 profit per year.
Fourth, Daniel deposits his $729 in his account at the bank.
The bank keeps 10% or $72.9 in his account, $729-$72.9=$656.1
The Bank loans $656.1 to Eric at 10% and makes $65.61.
Fifth, Eric deposits $656.1 in his account.
The cycle continues and the bank can loan out progressively smaller fractions of this loan with each creating an additional stream of income. This means instead of one loan for $1000.00 bringing them $90.00 per year, they have nine loans bringing them $90 + $80 + $70 + $60 + $50 + $40 + $30 + $20 + $10= $450 per year, a nine fold increase in income. This is a simplification of Fractional banking. But it illustrates how the bank can make multiple loans from the same $1000.00 and have multiple streams of income from that same $1000.00 because the law requires only a 10% reserve of all deposits, so the bank keeps the money moving and each movement makes them money.
Now, notice two important things, the consumers don’t move their money, but the banks move the money. The Bank makes money, by moving money, and the consumers don’t move their money and they don’t make money.
Let’s review, each time the bank gave a loan out, the first thing the consumers did was deposit it in the bank and use it to pay bills. Their money moved once, from their checking account to the accounts of their lenders. But notice that the bank moved their money ten times. The secret here was not the ten percent Fractional reserve, that rule enables the movement, but it is the movement which creates multiple streams of income.
Now your probably not a bank, but in you can move money like a bank. But first you have to stop thinking like a consumer who only moves their money from their checking account to someone else’s account. You need to start thinking like a banker.
Example A: Consumer thinking like a consumer:
Consumer has $1,000 to pay 5 bills of $200.00 each.
Consumer pays each bill $200.00 and is done.
The consumer’s money moves once, from consumers checking account to creditors bank account.
Consumer has no money left for investments or emergencies.
Example B: Consumer thinking like a Banker
Consumer makes $2000 per month, rent and food equal $1000, which leaves the consumer with $1,000 to pay 5 bills of $200.00 each. But this consumer thinks like a banker. This consumer sets $400 aside and pays first bill $600.00, then borrows $500 from first account and pays $500 to the second account. Then consumer borrows $400 from second account and pays $400 to the third account. Then the consumer borrows $300 from the third account and pays $300 to the fourth account. Then the consumer borrows $200 from the fourth account and pays $200 to the fifth account. The consumer money moves multiple times and pays multiple bills, leaving the consumer with $400 to put into an investment which pays $20.00 per month.The consumer uses the movement of money to pay bills and free up cash for an investment.
The next month the consumer does the same thing and now the consumer has an additional $400.00 to invest and now generates $40.00 in investment income. After ten months the consumer has had an Extra $400.00 to invest each month, for a total of $4000.00 and his investments now generate $200 dollars in income each month. But his debts haven’t increased by $4000.00 each account actually went down by $100 each month or $1000 over ten months, yet the consumer generated $4000 dollars of investment Capitol from the movement of money.
If the consumer keeps this up for 100 months, he will have invested $40,000 and be generating $2000.0 investment income per month, which is equal to his salary of $2000.00 per month.
Alternatively, you could use that $400.00 as an extra principle payment on your smallest debt, with the goal of eliminating it in 4 months and now you only have four debts. That’s the next example.
Example C: Consumer thinking like a Banker
Consumer makes $2000 per month, rent and food equal $1000, which leaves the consumer with $1,000 to pay 5 bills with minimum payments of $200.00 each. If he makes the minimum payment on all five debts he will pay them all off in 36-44 months. But this consumer thinks like a banker. This consumer sets $400 aside and pays first bill $600.00, then borrows $500 from first account and pays $500 to the second account. Then consumer borrows $400 from second account and pays $400 to the third account. Then the consumer borrows $300 from the third account and pays $300 to the fourth account. Then the consumer borrows $200 from the fourth account and pays $200 to the fifth account. The consumers money moves 10 times and pays multiple bills, leaving the consumer with $400 to make a large extra principle payment on the debt with the smallest principle balance and twice as much as they would normally pay. The next month the consumer does the same thing and now the consumer has an additional $400.00 to make an extra principle payment on the smallest balance debt. After the fourth month of making $400 dollar extra payments on the smallest debt the consumer has paid it off debt number five, so the next month of doing this the consumer has only four debts to pay. Now the consumer can set aside $500.00 and use only $500 to pay all four of those debts. After paying all four debts, the consumer makes an extra payment of $500.00 to their new smallest debt balance. Then after three more months the consumer has paid off an additional debt and starting month number 9 the consumer only has three debts to pay, so now the consumer can set aside $600.00 and use $400 to pay the remaining debts. Now the consumer can pay all three bills and make an extra principle payment on the debt with the smallest principle balance. The consumer repeats thus and after 3 months with these large principle payments debt number three is paid off and next month month number 12, the consumer has only two debts to pay and can set aside $700.00 for the extra principle payment. After two months debt number two is paid off and now starting month 15 the consumer has one debt which he makes a $100 dollar payment too, so after two months this last debt is paid off. On month 18 the consumer has eliminated all five debts. So instead of 42 months he paid them off in 18 months by thinking like a banker.
All this using the movement of money. A bank makes money, by moving money. You can too. But you have to stop thinking like a consumer, who only moves money from their banking account to their bills. You have to think like a banker, and keep moving money around, to stretch your money and make it go farther and do more. Bankers have a term for this movement of money, it’s called “velocity” or the “Velocity of Money” and it refers to how many times you move money. They know that the more times you move money the more things it can accomplish. It can be moved to create income or you can move it to pay multiple bills. Now you must be sure you are able to move money out of these accounts before doing this, and pay attention to due dates, but open lines of credit can be used in this fashion, it just takes preparation. I recommend you seek out a financial planner who specializes in the Infinity Banking Concept.
Remember knowledge is power, power brings wealth and wealth creates freedom.
✍🏼 written by Shortsegments.