Understand the Money Machine

Heidi has a term she likes to use: The Money Machine. It is another name for "big money," the global financial system that operates beyond our control. Massive financial institutions and global banking conglomerates control how most of the world's money operates. The Money Machine is the mover and shaker of finance on a micro and macro level. In many ways, we are entirely powerless over it. As consumers, the Money Machine knows how to manipulate us, and separate us from our money.


Therefore, we urge you: Watch over your money. Do not give it away freely. Otherwise, if you are not careful, your money will sprout wings and fly away, only to be pulled back into the vast void of the Money Machine.

Here is an example. Banks design their products to offer convenience, but there is a cost for that convenience. One of those costs is overdraft fees. You pay overdraft fees if you spend more than the amount in your account. The fees are small, but in 2007 alone banks raked in a whopping estimated $17.5 billion from overdraft fees. Apparently, a little bit from a lot of people can add up fast.

Here are two ways to outsmart the Money Machine:

1. Avoid debit cards

Debit cards make you lose control over your bank account. If you and your spouse/significant other withdraw from the same bank account throughout the day, you easily could become overdrawn and bounce checks all over town. It may be better to have separate accounts or mutually decide before each purchase.

2. Learn about "positive debt"

Debt can work either for you or against you. Some kinds of debt can work for you. If a debt is increasing your cash flow, it is called "positive" debt.

One suggestion is to use a low-interest rate loan to pay off high-interest debt. Here is one example: Say you have a large debt on a credit card that charges you 18% interest. If you could get a loan from the bank at, say, 8% interest and pay the credit card off, you would have automatically saved yourself 10% in interest payments. This could be a significant savings.

Here is another example: Say you have $10,000 in the bank earning 3% interest. You also have a loan for a car, on which you are paying 6% interest. It makes sense to take money that is giving you 3% and use it to pay off a loan that is costing you 6%.

In other words, if you have debt or a loan at a higher interest rate and you can get another loan at a lower interest rate, you can pay off the higher rate loan with the lower rate loan. On the other hand, you can use a loan at a lower interest rate to buy something that earns you a higher interest rate. Either way, you can save large amounts of money in interest payments that you did not have to pay.

The consumer is the "little guy" compared to the Goliath of the Money Machine. Stop allowing yourself to be manipulated. Become educated and regain control of your finances. Become committed to outsmarting the system, legally, by making wise choices. Remember, when they designed the Money Machine, they did not plan on consumers as smart as you!

Heidi Clingen is a long-time resident of Stevenson Ranch. She and Samuel K. Freshman are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, email them at Heidi@TheSmartestWay.com.