Becoming Your Own Banker, Part 32: How to Invest

If you want to build wealth, reach your financial goals for retirement income, and be able to take care of everything from college for your kids to paying for cars, your home, and a lifestyle you enjoy, the most common first question is, “How to invest?”

In his signature book, Becoming Your Own Banker, Nelson Nash reveals that changing your financial environment is the lynchpin to financial freedom.  For today’s discussion, we’re returning to the text to talk about financial philosophy – the typical philosophy vs. the successful philosophy, and how to finally get results by changing your thinking.

We’ll discuss why rates of return are a red herring, touch on the importance of dividend rates, and explain why you should understand your finances as a system rather than a process.

Prepare to redefine success beyond the allure of high investment returns, and instead, learn to master the art of personal finance by controlling your financial destiny. This episode unpacks the necessity of substantial liquid savings and the strategic management of capital, which together forge a path to superior financial control and efficiency. We shine a light on the often-overlooked reality that a substantial part of our income dissipates through financing charges, and underscore the essential nature of a robust emergency fund before taking investment leaps.

Venture with us through the evolving financial paradigms, reflecting on how Bitcoin, the expanding US balance sheet, and a worrisome debt-to-GDP ratio are sculpting our economic landscape. Bruce and I explore how American consumerism shapes our spending and the significance of developing a financial acumen that evolves from unconscious incompetence to unconscious competence. With Nash’s financial philosophy as our guide, we dissect the drawbacks of conventional financing and celebrate the empowerment that comes from holding the reins of one’s financial affairs.

Finally, we address the surge in inquiries about judicious fund allocation, proffering not a prescriptive investment playbook, but a transformative perspective on money management. I share effective banking strategies that foster automatic savings and the wealth accumulation snowball effect. As we guide you through the intricacies of financial control, we to equip you with the insights necessary to recalibrate your financial habits for a future rich in prosperity. Join us for a conversation that promises to elevate your financial literacy and position you for long-term success.

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Philosophy and Investments

Investments are one of the keys to wealth-building, because they can help you break out of the “trading time for money” rut, which can, in turn, improve your financial life significantly. By having capital that’s not reliant on how many hours you put in, you can increase your pool of money faster, have capital to use for scaling your business, and so many other uses besides. However, your investing philosophy matters a great deal here. Not all investments work the same, or have the same results. And whole life insurance is NOT an investment, it’s an asset that can help you if you intend to invest, however. 

In the Glossary of Becoming Your Own Banker, Nelson shares the Webster International definition of philosophy as “a search for the underlying causes and principles of reality; a quest for truth through logical reasoning rather than factual observation; a critical examining of the grounds for fundamental beliefs, and an analysis of the basic concepts employed in the expression of such beliefs.”

Commonly, we see people with an investment philosophy that chasing the highest rate of return makes the most sense. And the reason they think this way is because they want to do the most with the money that they’re trying to grow. Of course, this makes sense to an extent. And yet, this philosophy ignores what’s happening with the rest of your money. It also ignores what average rates of return mean.

What’s Your Philosophy?

What’s interesting is that most people don’t know where their financial philosophy comes from, or why they have it. This isn’t a judgment if you don’t. Our philosophies often come from the way we’re raised to perceive money, and it’s not often that we question that. Some families are tight-lipped about finances, while others are more open—that alone can have a profound impact on how you grow up thinking about money. 

What matters is that you think about your financial philosophy now, and consider why you think and feel the way you do. You’re sure to have some enlightening moments that either reinforce your beliefs or help you realize that you have room to rethink your thinking. And don’t worry, you can listen to new ideas with an open mind and still come to your own conclusions at the end of the day. 

How to Invest and Rethink Your Thinking

So let’s get back to “typical” investment philosophy. The general thought is that when you invest, you should be chasing the highest rate of return because that will get you the best results. But what we know is that by ignoring the rest of your money, there could be “money pits” in your strategy. For example, you could be passing up the opportunity to earn interest, or you could be paying too much interest to certain lenders. 

All of the actions you take in your personal economy have an impact on your growth and success, not just your investment actions. So what if you took a more holistic approach? Instead of chasing the highest rate of return, you could instead focus on plugging financial leaks. Find ways to earn interest in the background, lower your overall interest liability, and even invest in things that provide steady cash flow. Rather than seeking the highest rate of return, you would seek not to lose money—which usually means putting your money in assets outside of the stock market. 

By doing these things, you’ll find that your pool of capital grows larger and larger by the year, your cash flow increases, and overall your quality of life seems on the up and up. If you choose only to seek out a rate of return on your investment dollars, you might see an impact on your future dollars, but the quality of the rest of your dollars will stay unchanged. 

Which sounds better to you? This is the difference that whole life insurance, with an Infinite Banking Concept strategy, can do for your personal economy. The philosophy behind it is that all of your dollars matter, present and future—and rate of return doesn’t necessarily give you that security. 

It’s so important to rethink your thinking when something isn’t working for you, and to do that, you’ve got to recognize the philosophy behind your current actions and beliefs. Only then can you make positive change. 

Savings is Valuable

[19:10] “Savings is so valuable if we can build savings and control capital, whereas getting a higher rate of return or finding the best investment can often be a red herring—this idea or this diversion from the real source of success in your financial life. And building true financial success is having a discipline and habit of putting capital aside and then building stores of liquid capital.”

Average Doesn’t Mean Much

One argument in favor of stock market investing is that the market earns an average of 12%. Unfortunately, averages don’t mean much compared to experience. What we mean is that just because an investment is averaging 12% doesn’t mean that you’re experiencing an average of 12% growth on your account. 

For example, you could experience extremely negative RORs one year, a mildly positive ROR the next year, a zero ROR the year after that, and then a wildly positive ROR after that. And while you may be tempted to say–“But look, that last year was wildly positive!”–you still have to consider what that positive year looks like in context. And in context, it probably looks a lot like recouping losses. Over those 4 years, it’s entirely possible to be exactly where you started, even with an average of 12%. 

Don’t believe us? What’s the average of 100 percent and -50 percent? You’re looking at an average of 25% over two years. And yet, if you make 100% in one year and lose 50% the next year, you have the exact amount of money you started with. Are you beginning to see how averages don’t mean all that much compared to what you actually experience? 

Rate of return – Averate Isn’t Real

System vs. Process

What this discussion can boil down to is how you think about your personal economy. Do you think about it as a system or a process? While these may not seem different to you, they actually have very different functions. 

A system, which is how we encourage you to think about your finances, is something with many components and moving parts that are all connected. Our water cycle is a system—water moves from the ground, to a water source, to the air, and back again. So, too, does money move from wallets to businesses to the banking system and back (in simple terms). Everything you do with money is connected, and you want that system to work as efficiently as possible so that money flows freely. 

What’s more, if you understand the banking system, you can adopt that system for yourself with whole life insurance. This makes your money even more efficient and smooth.

On the other hand, a process is a linear motion with an end goal. It’s not a living, breathing cycle, but instead a goalpost that comes to a resolution. For many, that resolution is just to save enough money for retirement. But what is enough, and what about all of the other milestones in your life? Choosing a system allows you to benefit from the cyclical nature of money over your entire lifetime. 

Recognizing this ecosystem and gaining control over it is the most important thing you can do, and Infinite Banking allows you to do just that.

Book A Strategy Call

Do you want to coordinate your finances so that everything works together to improve your life today, accelerate time and money freedom, and leave the greatest legacy? We can help!  Book an Introductory Call with our team today https://themoneyadvantage.com/calendar/, and find out how Privatized Banking, alternative investments, or cash flow strategies can help you accomplish your goals better and faster. That being said, if you want to find out more about how Privatized Banking gives you the most safety, liquidity, and growth… plus boosts your investment returns, and guarantees a legacy, go to https://privatizedbankingsecrets.com/freeguide to learn more.