Bank finance articles and tips

In this post recession economy the term "credit" has become a dirty word. It is a shame that this has happened because credit can still be a vital asset to any operation and there are too many ways to make credit work for you. The thing to understand is that credit is not the problem. It is the way that the credit is being used. You know how we do it. We apply for the Credit card and we are already thinking of ways to spend the money before we are even approved for it. Even though I hate to repeat myself I am going to do so here because I need to drill this point into your head. The same investing principles apply.

Wealth building is all about the accumulation of assets. It doesn't matter whether you are spending cash out of your pocket or you are swiping your life away. You will not build wealth if you are spending your money on things that are not putting any money back into your pocket. One of the ways that credit can help you to put more money in your pocket is by utilizing a tactic called leveraging.

Leverage is a term that is used in financial circles. The general definition of leverage is to use debt to increase your position in a money making venture thereby using other peoples money to maximize your profits. That might have been too much for you. Let me simplify that definition with an example. Lets say that you are going to place a bet on a horse race. Lets say that you know for a fact which horse is going to win. I don't know how you know which horse is going to win and it doesn't matter, all that matters is that you know. Now lets say that the odds are against the horse that you know is going to win. 1,000 to 1. That means that for every dollar you put on this horse you can make a thousand. That is great. Right?

ou can make a lot of money here. The profit potential is enormous. This is a sure thing. You have $100 dollars to bet. At 1000 to 1 odds you can make $100,000. That is a good flip. However, what if you borrowed another $200 dollars from one of your associates and you used his money to bet too? Now you can make $300,000 off of this sure thing and you would just have to pay him whatever you told him you would give him back. What if you have another associate that is willing to loan you another $500? Now you have a total of $800 dollars to bet and at 1000 to 1 odds you can win $800,000 dollars. That is leveraging. If you had used only your money you would have only been able to win $100,000. By borrowing from your associates, which is credit, you have increased your profit potential by 800%. This is a tactic that is used by the professionals and that can also be used by you. It is all about using credit wisely.

Remember that credit is not the enemy. It is merely a tool and like all tools it is only as useful as the person that is using it. If used correctly credit can be a tremendous asset, if used wrong credit can ruin your life. Discipline is the key.

NaQuan L. Gray is a finance major at the University of Pennsylvania School of Business. His goal is to educate the people on the importance of money management and to show people how financial literacy can improve the quality of their lives. To read more of this authors articles visit his website at http://www.astonagendas.com.

By NaQuan L Gray
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