Seven Secrets to Money Success - Number 7

Think like a banker , not an accountant Have you ever had a conversation with an accountant about your finances? Chances are that you came away from that conversation a little confused and in some cases not knowing what he or she was talking about. The reason for this is that accountants are taught to think in pluses and minuses. These are called debits and credits and are used to drive the whole process of double entry book keeping. Accountants work out your finances and end up putting all the numbers into a balance sheet which is what you’ve got left.

This is based on the following equation: Owners Equity = Assets – Liabilities

So at the end of the day, your wealth is made up of pluses and minuses and as long as the pluses are greater than the minuses then you’re OK.
A banker on the other hand is always looking to see how the accumulation of wealth can be funded. They know that these days it is impossible to save up for everything.

Think about buying a family home. If you were trying to save for one, you would likely never get there because the prices would be going up faster than you can save. You have to pay rent and try and save at the same time! So the banker thinks like this.
The house you want to buy is Capital. To buy it you will need to find the funds to buy it. You may have saved a deposit (your equity) and the bank will then lend you the difference(your debt).

Bankers have an equation that looks like this: Capital = Debt + Equity

So let’s look at an example.
House value $200,000 (Capital)
Deposit saved $20,000 (Equity) Bank
Borrowings $180,000 (Debt)
So this equation is $200,000 = $180,000 + $20,000

Most people find it easier to think like a banker because they can relate to it more easily and when you think about it, you probably have transactions more often with your bank than your accountant and can gain more value by thinking like the banker. Bankers are always looking to sell you more debt, so that you can accumulate capital more quickly. If you can get a good return off that capital, you are moving to better wealth creation and a chance to move toward financial freedom.

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