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Money-Management Articles >> Principle 10 - Putting Your Money Into Motion
By Drew Miles Learn how to get
your dollar to do more than one thing at the same time: generate multiple
streams of passive income. Have more than one strategy for generating
passive income because if that one source goes bad, you’re in a world of
hurt.
How banks get rich and how to use their wealth-building tactics
Imagine you deposit $1,000 in the bank. For every $1,000 the bank
receives, the Federal Reserve will lend the bank $10,000. What do they do
with the extra money? Give out car loans, for example, at 10 percent
interest, when the bank is paying six percent interest on the same amount
it borrowed from the Federal Reserve. This is a small fraction of how
banks make money. The car dealer accepts $10,000 for the car, deposits it
at the bank, and the bank then receives $100,000 for every $10,000
deposited. That initial $1,000 investment has been leveraged well. This is
how banks get rich and how you should be thinking in regards to wealth
building. How can you leverage your money, take the profit and reinvest it
over and over?
It’s not what you make, but what you do with what you make
A student came to me recently. He’s a professional who makes an annual
salary of $400,000. He admitted he can make money but has nothing to show
for it. Besides the equity in his home, he had no retirement, investments,
savings and $150,000 in credit card debt. This is not uncommon. Because he
spent every penny he was making, it was challenging for him to save any
money each month. We started depositing a modest $100 each month into a
savings account. We then found $10,000 in tax deductions for him using
Pathfinder’s strategies. He immediately deposited his $10,000 annual bonus
into the savings account and accepted a side job teaching (between $50,000
to $100,000 in addition to his annual salary) to put toward savings. When
you uncover more money that’s discretionary income, commit it to savings
(or retirement savings) so you can put the wealth building into motion.
*Risk capital is a small percentage of your savings that is committed to
higher level investments. It’s wise to build this into your savings
account, however you should never bet the $50,000, which took you 15 years
to grow, on one deal. The risk is too high.
During my years of law school, I completed an internship with a New York
Supreme Court Justice and second legal internship with a law firm and also
began investing in real estate. Immediately upon graduating law school and
passing the bar exam, I opened my own law practice. From 1988 to 2001, I
practiced with my partner under the name Miles and Gillard, where I
concentrated in the area of real estate and business law.
This article was added on: April 16, 2006.
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