Think Like a Bank

by Kristina on April 18, 2011 · 0 comments

 

When you think about money, what comes to mind? When you think about money do you think about being rich, or do you think about something else?  Maybe you think about the place that holds your money, or the place where you invest your money, or maybe when you think about money you think about your bank.

If we think like a bank we can accumulate money…just like a bank.  If we treat our money like the bank treats their money, then we will always have money…just like a bank.

Here are some tips about thinking like a bank and creating our personal wealth:

10 Tips to Think Like a Bank:

Accumulate Your Money. The goal to saving money and allowing it to accumulate is to have more money coming in than we have going out.  Our income has to surpass our expenses.  If we live within our means we will always have money.

Keep a Cash Reserve. Banks always keep a cash reserve on hand, and as individual investors, we should do the same.  Our Emergency Fund is our cash reserve.  The amount we wish to keep in it is an individual choice, but nevertheless we should all have a cash reserve in case of an emergency.

Don’t Lend Out Money When People Are In Need. Banks never lend out money to people in less than desirable financial situations, we as personal investors, should always do the same.  Don’t invest in a drowning company to help them get back on their feet (even if they promise a 20% return), and don’t help out a friend who has a poor financial past.  Old habits die hard and we may never get our money back.

Lend Out Your Money With Interest. A bank would never lend out money without charging interest, and neither should we.  If we do decide to lend out money we need to have a promise to pay as well as charge interest on the money.  We don’t want to get rich off our friends, we just want to protect our self and make sure that we get our money back. Charging interest makes up for the interest that we would have earned if we invested our money instead of lending it out.

Keep Your Money Safe. We need to protect our assets with insurance on our home, our car, our lives, and other valuable items.  If we do have some cash or other assets they should always be protected in a Home Safe or Safety Deposit Box to prevent a potential loss.

Invest Your Money Wisely. Before we decide to invest we should research potential investments.  Of course past performance is not an indication of the future, but it will provide us with an idea of how the investment is structured.  We also shouldn’t put all of our eggs into one basket.  This doesn’t mean investing with different financial institutions; it means we need to diversify our portfolio.

Specialize in Your Field. A bank is never going to offer medical advice, and neither should we if we aren’t a doctor.  We should talk about what we know, and offer advice on subjects that we are familiar with.  We should never invest in something that we don’t understand, and we should never give our money to someone that we don’t trust.

Publicly Trade Information. Banks publish their earnings and share their information with the public on a quarterly and yearly basis, and so should we.  It’s ok to talk about money with our family, our friends, and our co workers; everyone can benefit from sharing information.  Other people can learn from our mistakes, just as we can learn from theirs.  At the same time, we can benefits from other people’s financial tips and success.

Give Back to the Community. This is so important for both banks as well as individual people.  Every bank either has a charity or cause that it supports and so should we.  Some banks have even founded their own charity.  I feel that it is very important to give back to our communities and support a worthy cause. We can donate time or money it doesn’t matter, as long as we are helping out.

Forecast for the Long Term. This rule applies to our income, our investments, and our savings.  It’s ok to have short term goals to keep us focused, but we also have to prepare for the long term.  Saving for retirement, buying a home, going back to school, and paying off debt are all long term goals.  In finance, it is less common for people to set short term goals, we usually forecast for the long term.

Photo by Epsos

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