When you go to an electronics store, you pretty much expect that they bought the inventory they have available for you, right? You also expect that they bought it for less than they’re selling it to you. That’s just common sense, otherwise they wouldn’t be in business.

It’s also common sense that whatever money they earn from their sales is going to get re-invested into more merchandise, that way they keep making money. They might even upgrade their systems so they can serve you more efficiently – you get the idea.

Well it works the same way when you "buy" money – your bank, lender, and insurance company already bought the money they’re offering you, and they bought it at a better rate than they’re selling it at. Whenever you make a payment to an insurance plan for example, they’re taking that money and investing it so they can pay you when you need it, and make a profit so they can pay their employees, upgrade their systems to serve your more efficiently, and so on.

With banks and lenders, you’re not just their client, you’re also their product! When you "buy" money from them with a loan, they take that loan and sell it to whomever they can. If you’re a sure thing (definitely going to make your payments as scheduled), your loan will be purchased more readily. I’ll get into deeper detail on that at another time.

Back to the electronics store analogy, you can’t get the store’s discounted price at an electronics wholesaler because you can’t buy in bulk, but the financial institutions don’t want you to know, you can buy money where they buy money, and get their discounted rate – with a small exception on mortgages and loans, since you need a banker’s license for that, but again I’ll dig deeper on that a little later.

So where do they buy their money? On the world market of course – usually with the big boy version of mutual funds. They have all your money to flaunt around, so they can buy someone in the know to take care of their investments – money that could be yours, if you’re willing to give up paying for convenience.

After all, convenience is exactly what you’re buying. All they’re doing is making the coffee for you and giving it in smaller amounts for a higher cost than if you brewed it yourself and put in your own cream and sugar. So go get yourself a bag of beans, and come back tomorrow to learn the best ways to grind them. We’ll have you brewing your own coffee in no time!