What Is a Money System? The Missing Link Between Income, Spending, and Wealth

I’m currently reading the book “Atomic Habits” and I came across a fantastic line. “Winners and losers have the same goals. What separates them are their systems”. I love that line because of how simple and how true it is. Don’t we all want to be wealthy and financially free? If that’s the case, then why is it that only a few people are truly able to achieve that level of wealth?

Having goals are part of the solution, but they aren’t nearly enough to guarantee success. What they do is give you the end state. They give you the conditions that need to be met in order for you to declare success. This is extremely important to know, because it gives you direction and purpose, but it is not a plan. When it comes to money, the system is the path towards the goal. It is the plan on how you are going to achieve those conditions that allow you to declare that your goal is attained.

What is a money system?

A money system is the structure that determines where your money goes, how it grows, how it is spent, and who controls it. It is all of the pieces that go in to building, creating, and most importantly retaining wealth. The system is what defines and controls how your money moves. It gives each and every dollar a purpose, and the framework to carry out that purpose.

A money system is designed to give you maximum control over the entire lifecycle of your money. What I mean by that is, a money system will be designed to give you absolute control over your money from the second it enters your bank account, up until you pass away and leave a legacy behind. This includes everything in between, most importantly, how you finance major expenses.

A money system differs from conventional financial planning advice because it concerns both how you save and how you spend. Traditional financial planning is concerned with minimizing expenses to maximize investments and future growth. This creates a direct conflict in your budget and your psychology. Spending is bad, saving is good. Yet spending is a necessity of life. A financial system synchronizes the two. It answers the question how can I profit from the act of financing?

For most people, spending money is the end result of how they think about money. Once you’ve spent money, it is gone, therefore, its not mine to think about anymore. What this leads to is the realization that you are just handling money instead of controlling it. If this line of thinking is true, then any income you make is only kept in your care for the benefit of someone else. All of your hard-earned money that ends up in your bank account is just being babysat by you until you can give it to someone else. You have no control.

That is not how we want to think about money. We work hard for every dollar, and so we must work equally hard to protect every dollar and ensure we maximize the lifetime effectiveness of that dollar.

Components of a Money System

The goal of a money system is to look at finances holistically. It’s a terrarium for your finances. There are no leaks, there are no additional inputs, therefore everything needs to work in harmony. It needs to be designed superficially so it can continue to operate without constant outside input.

In a very simplified example, a terrarium has a balance between plants and organisms. The plants use the light to grow, this creates food for the organisms, the digest the dead plant matter, which returns nutrients to the soil that the plants use for food. It is a complimentary environment where the only input is energy, in this case its light. The job of the terrarium is to maximize the energy input into the system and recycle it indefinitely. We want a financial system to work the same way.

Money coming in acts as the sunlight, that’s the energy in your financial system. The growth portion takes the role of the plants. They produce the capital based on the returns they get. The act of spending plays the role of the organisms eating the plants for food. If they eat too much, the balance is destroyed and the whole ecosystem collapses. The nutrients being returned to the soil is the act of refilling our system when we do borrow.

That money being used to refill the system can then be used by the growth metric to continue producing more capital.

In reality it looks like this. Put your money in a place where it is going to compound and grow. Then, instead of withdrawing the money, which would be equivalent to just cutting the plant down and removing it from the environment, we leverage against the value of the asset. We borrow money from an outside source to finance the things we need in life. This is the organism. It is temporarily reducing our spending power because it consumes some of our resources. However, none of those resources are removed from the environment so they continue to grow when looked at holistically. This means your money is still growing in the background, even though there is a lean against it.

As we repay the loan, plus interest, we are returning our spending power by reducing the lean. Each and every dollar we pay back, is immediately accessible to us to borrow again should we need it. It works very much like a line of credit. However, because a money system is a closed environment, the interest that is collected on the loan must come back into the system. How does this work?

It only works if we are also a part owner of the lending institution. If that is true, then we get to share in the divisible surplus generated by the company in the from of a dividend. That way, the interest ends up back in our system and further contributes to growth.

Each time you introduce more money, or capital into your system, you introduce more energy. That energy is then used up and repurposed over and over and over again, without ever leaving the environment. This creates uninterrupted compound growth. The only limiting factor then is the size of the container.

The best tool to accomplish this is participating whole life insurance, and the process is called infinite banking. It is an exceptional way to organize a system for synchronizing your finances and benefiting from the way money moves.