In the true spirit of the founding principles of TheMoneyGuy, our focus falls squarely on how the financial institutions make their money. I mean I certainly would love to have what is effectively a licence to print money like the banks do and that’s how they make their money — they use the money we all contribute as deposits to create loans. So they loan all our money out and charge interest on those loans.
By all our money I really mean all — in fact they loan out all the money and more because of what’s called leverage and gearing. Depending on the regulations governing your financial jurisdiction, your bank can essentially create credit to loan out through gearing. This is called fractional reserve banking — for every £100 you and any other client of theirs deposits, the bank can effectively create up to twelve times that amount, loan it out and then charge interest on it.
So to sum it all up before I even have to go into too much detail, the big deal about principal capital is the ability of whoever is charged with keeping it safe to use it and generate profits out of it.
But chances are you or I will never be able to go through the gruelling process of eventually opening up our own banks and you probably don’t want to get caught up in all the bureaucracy that comes with running a bank in any case. So if we’ll never be able to play in the big leagues of bankers, why is there still so much fuss concerning principal capital? I mean if your account has a negative balance for a prolonged period of time, it gets closed down for inactivity. This suggests that your value to an institution such as a bank resides in your financial transaction activity or it resides in the amount of capital you have stored with them.
So if the banks can use principal capital to their advantage, what about the average man on the street? How can you and I use the same principles of leveraging principal capital to make more money?
Get on the Right Side of the Rewards Structure
You’re perhaps also aware of the fact that banks offer interest paid to you on the money you choose to save with them and although it’s not much in relation to how much the bank itself makes from loaning your money out, it’s just one way of getting on the right side of the principal capital rewards system. This can be applied to other platforms as well, beyond the obvious financial institutions, such as taking advantage of the many Titanbet casino offers, for instance, many of which involve direct credit bonuses like getting more credit to bet with or even gaining free entry into some competitions which could have you winning really big.
If you even think about the property industry — there’s a lot of talk about collateral, which is a form of principal capital and all this demonstrates is that the more you have, the more you can get further, quicker.