Welcome to the Fynanc Blog, where we deep dive into the world of finance and empower you with the knowledge to achieve your financial goals.

In this article, we explore the importance of adopting a banker’s mindset to reach your financial goals faster, safer, and with more certainty. Understanding the banker’s mindset can be the key to unlocking success as an investor, no matter the market conditions.

Understanding The Banker’s Mindset

Most investors oscillate between an investor mindset and a consumer mindset.

The Consumer Mindset:

• Consumers focus on meeting their immediate needs and desires. Their primary goal is to satisfy personal preferences and acquire goods or services that provide for their immediate needs or enjoyment.
• Consumers often have a shorter time horizon, seeking instant gratification.
• Consumers tend to be risk-averse when it comes to their purchasing decisions. They prioritize safety, quality, and value for money, aiming to minimize any potential negative outcomes or dissatisfaction with their purchases.
• Consumers make purchasing decisions based on personal preferences, affordability, and immediate needs or desires. They may consider factors such as price, brand reputation, product features, and recommendations from others.
• Consumers focus on individual consumption and seek products or services that provide personal satisfaction, convenience, or enjoyment. Their decisions are driven by personal preferences rather than financial considerations.
• Consumers acquire products or services primarily for personal use and derive satisfaction from their direct consumption. They are looking to fulfill an immediate need or want rather than expecting monetary returns.

The Investor Mindset:

• Investors aim to grow their wealth over time by acquiring assets that have growth or income-generating potential. Their primary objective is to generate consistent income from assets to achieve long-term financial goals, such as retirement planning or funding major life events.
• Investors take a longer-term perspective, understanding that wealth accumulation takes time and involves some level of risk. They are willing to forego immediate consumption in favor of the potential for long-term financial growth.
• Investors are willing to assume some level of risk in their investment decisions, understanding that higher returns often come with increased risk.
• To be successful, investors must engage in thorough research and analysis before making investment decisions to mitigate risk. They need to evaluate vast amounts of financial data, analyze market trends, and master the fundamentals of the asset class they choose (be that real estate, business ownership, or stocks and bonds, among others) to be able to make informed choices.
• Investors focus on the type and volume of assets they can acquire with the view to achieving long-term financial goals.
• Investors view their financial assets as vehicles for wealth creation. They expect their investments to appreciate over time, generating capital gains, dividends, or interest income.

Investors and consumers operate in a different reality to bankers, we call this the ‘asset-first’ world.

In the asset-first world, your focus is on your ability to acquire goods and services, or in the case of an investor, income-generating assets. How you finance those acquisitions is a secondary thought. The primary goal is in acquiring ‘stuff.’ How you finance your ‘stuff’ is often treated as an obstacle you need to overcome to achieve your goal rather than an opportunity to make money.

However, if you want to reach the same level of success as the world’s leading financiers, you need to adopt a whole new mindset – the banker’s mindset.

Introducing the Banker’s Mindset

In the world of banking, the saying “he who has the gold makes the rules” resonates deeply, reflecting the intricate power dynamics at play.

The Golden Rule states that: “He who is perceived to have the gold makes the rules.” Bankers do not focus on the ‘stuff’ they acquire and rather focus on how to leverage the financial system to maximize profits.

Bankers’ power lies in their ability to utilize investors’ need to lend money to make acquisitions, enabling them to shape the rules. As you adopt the banker’s mindset, you will begin to act as though you make the rules—and eventually, you will.

Let’s begin by exploring a fundamental concept: every dollar you possess can either earn interest or lose the interest it could have generated if it remained invested.

Take a moment to absorb this concept. Reflect on the money you spent earlier today on lunch—those dollars could have accrued substantial interest over the years. You willingly relinquished that opportunity.

This concept is known as opportunity cost. Each time you hold a dollar, recognize that it can work for you, generating interest, or you can choose to forgo that potential by spending or stashing it away. It is important to clarify that this doesn’t imply frugality, but rather a banker’s astute focus on the interest every resource can generate.

For bankers, FINANCE is the primary focus, rather than the ‘stuff’ they acquire (or the social value attached to that ‘stuff’).  Bankers are masters of risk management and their primary goal is to maximize profit and minimize risk.

Bankers excel at using other people’s money to generate their own profits. They encourage individuals to deposit their funds in savings accounts and certificates of deposit (CDs), essentially immobilizing their money. For bankers, this “dead” money becomes an opportunity to generate more wealth. Bankers understand the significance of keeping money in constant motion—leveraging the velocity of money to maximize returns.

The Banker Mindset vs. The Investor Mindset

Investors prioritize equity (‘stuff’), whereas bankers prioritize money (‘finance’). From a financial standpoint, which perspective holds more weight? Upon deeper analysis, it becomes evident that money is the primary focus for bankers.

Investors tend to accumulate equity to showcase their net worth, whereas bankers encourage investors to retain their equity to shift more risk onto them and away from the lenders. Investors derive satisfaction from owning assets, while bankers view them as collateral to secure cash flow, preferring not to own the assets directly. Investors may be engrossed in the “landlording business”, but for bankers, the primary focus is on finance. Investors generate cash flow by leveraging bankers’ funds and owning properties, while bankers’ profit by utilizing consumer funds and collateralizing mortgages obtained through lending.

Investors assume a higher level of risk by making down payments, thereby shifting risk away from lenders and onto themselves. In contrast, bankers require borrowers to provide down payments, thereby transferring more risk to the borrowers and lessening their own exposure. Investors often find themselves asset-rich but cash-poor, while bankers boast both asset and cash abundance. Investors must possess good credit and financials to qualify for loans, whereas bankers have more lenient requirements.

Risk Relationship with Borrowers

To understand the risk dynamics in lending, let’s examine a scenario.

Suppose a homeowner purchases a $100,000 house, acquiring an $80,000 loan from a lender, and making a $20,000 down payment. Whose money is at higher risk: the homeowner or the lender?

Upon careful evaluation, it becomes evident that the homeowner assumes greater risk. If the property were sold immediately, the homeowner would need to repay the $80,000 loan, cover closing costs and commissions, leaving them with only $10,000 to $12,000 from their initial $20,000 down payment. The homeowner’s funds are impacted first, highlighting their higher risk exposure.

In scenarios where lenders provide a 100% loan and homeowners contribute no down payment, lenders face the highest risk. This was evident during the late 2000s when property owners with no down payment walked away from their obligations, leaving lenders to bear the brunt of the risk. On the other hand, when lenders secure a 65% LTV loan, they position themselves favorably, potentially acquiring 100% of the property value for only 65% of its worth, thus further shifting risk away from themselves.

Bankers are proficient at shifting risk to borrowers, continually seeking to minimize their own exposure. The risk relationship between borrowers and lenders remains constant, perpetually influenced by the direction in which risk is allocated. It is crucial to consider which direction you want the risk to be pointing, as it directly impacts your level of risk exposure.

The Banking Mindset is About Safety

The cornerstone of banking is safety. Bankers diligently shift risk to borrowers and excel in the world of finance, rather than the asset-first world that most investors inhabit. Bankers implement investment frameworks to mitigate risk and ensure that they can generate more wealth than the investors they finance.

Bankers have the remarkable capacity to “clone” money and create spreads, all through paper transactions, without the complexities associated with physical assets such as properties or businesses. By adopting the banker’s mindset, you can unlock these financial opportunities.

If you would like to learn more about the Banker’s Mindset, download the FREE bonus chapter extracted from George Antone’s book, the Bankers Code below: