The Bank of You

Amar Pandit , CFA , CFP

What if I told you that you were your own bank?

By that I mean, you are the governor of your bank…You are the CEO of your bank.

If that is the case, which it is, how are you going to manage your capital?

Think about how a bank manages it.

A bank borrows money at the lowest possible cost from people like you…How?

Through Current Accounts and Savings Accounts (popularly known as CASA) and the favourite fixed deposits. These are the bank’s liabilities. Why? Because they need to be paid back.

At the same time, they lend and invest their capital at much higher rates taking in a lot of risk on the foundation of your capital. A loan given by a bank is its asset. An investment made by a bank in a business is its asset. A FinTech company they required is also an asset.

A bank then deducts its operational cost and what remains is profit…and mind you all well managed banks are super profitable.

Now think about how most people invest their capital. Let me give you an example.

Amar (not me) like many lends his money to this same bank at the lowest possible rate of capital. Because it’s called a fixed deposit and he is told its safe (for whom may I ask). He earns a fixed return while his personal lifestyle cost keeps going up.

What do you think is happening to his wealth?

His wealth no longer seems safe from his personal lifestyle perspective. This bank of you seems to be eroding wealth.

Wouldn’t he have been better off owning a piece of this bank (or more appropriately/suitably a diversified portfolio of businesses including the biggest banks) rather than lending money to this bank?

Given this scenario, what are you going to do with your bank?

I have a few nuggets of wisdom for you to consider.

First…Have a trusted, caring, world class real financial professional by your side (a very important position for you to fill) …Second…Let him do his/her job for you…