E7 - The Truth About How Banks Use Your Money

Most people never realize they’re paying rent on their own money.

In this episode of Before the Returns, Jaden Zubal explains how the modern banking system actually works — why banks can lend out nearly ten times what you deposit, and how that means your money is working hard… just not for you.

You’ll learn how fractional-reserve banking creates money through credit, why banks always win inside their own system, and how you can start thinking like a bank — using structure, control, and flow to move from renting your financial life to owning it.

💡 In this episode, you’ll learn:

• How the Federal Reserve and fractional-reserve banking really work
• Why banks can lend out $1,000 for every $100 you deposit
• What it truly means to “rent” your financial life
• How the wealthy mirror bank systems to build lasting control
• The Four Pillars of Wealth — structure, control, cash flow, and movement
• How to start shifting from renter → owner of your own financial system

🔑 Key takeaways:

“Your money is working hard — just not for you.”
 “The moment you start asking permission to use your own money, you’ve stopped owning it.”
 “You don’t have to fight the banks — you just have to stop playing their game.”

Learn more at www.jadenzubal.com | Follow @jadenzubal | Join the *Before the Returns Weekly* newsletter

📩 Questions or ideas? Email: jadenzubal.wealth@gmail.com

⚖️ Disclaimer: This podcast is for educational purposes only. It is not financial, tax, or legal advice. Always consult with a qualified professional before making financial decisions.

Transcript

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Here's something wild to think about. When you deposit $100 to your bank account, that money doesn't just sit there waiting for you. The bank can lend out nearly 10 times that amount. In fact, as of 2020, there's technically no specific rule on how much they can lend out anymore. So what that really means is that if you deposit $100, by the time that money makes its loops, however many times it's going to, there could be as much as $1,000 that have been lent out based on your original deposit. You're earning maybe half a percent in your checking account, if you're lucky, on that hundred dollars. While the bank is charging six, eight, sometimes even more percent on the same dollars, right? So you're playing the game, but they own the game. And that's not a conspiracy. That's how the US banking system is designed. The Federal Reserve explained it itself, that banks keep only a small portion of deposits and lend out the rest, multiplying the money supply. Hello and welcome to episode seven of Before the Returns. Today I want to talk a little bit about this idea of Federal Reserve Banking. And I'm going to talk about how, as I mentioned in the close of episode six, you can own the system instead of letting somebody else owning the system and you rent from the system. Okay. So why does that matter? And really how does it work? When I say most people are renting their financial life, that's really what I mean. I mean that your money is working hard, it's just not working for you. Think about it. Your money never stops moving. You deposit it, and the bank lends it out. Then you borrow it back through loans or credit cards and pay them interest for the privilege of using your own capital. They're earning returns on your effort, your savings, your risk. But you do all the work and they own the structure. That's renting, paying to use something you don't own. And at the end of the day, walking away with nothing to show for it. And in previous episodes, I even talked about renting versus buying when you talk about a house. And there are cases for renting that house. Well, there may even be cases for this where, okay, sometimes you just have to rent the system, right? Sometimes you're not in a position to own the system. As you develop financially, you can put yourself in a position to own the system, just like you can put yourself in a position to own a house. So let's talk for a minute about how the Federal Reserve system actually works. Okay. I'm going to try and keep this somewhat high level, not overcomplicate it here, but I want to help everybody listening understand just broadly speaking what's actually happening. Because it's it's kind of a crazy concept when you hear somebody say that you're going to give a bank $100 and $1,000 is going to be lent out because of that, right? So where does the $900 come from? Is it just appearing out of thin air? And not really. That's not that's not technically how it works. So here's how the system actually works. The Federal Reserve or the Central Bank of the United States sets the rules for commercial banks, right? So the Federal Reserve is sometimes you hear about rate changes with mortgage loans. That's the most common thing that we think about is okay, every so often they have a meeting, they come out and they tell us our rate's going to go up, down, you know, stay the same. What's the impact of that? Because technically, when the Federal Reserve makes a rate change, that doesn't directly impact mortgage loan rates, but it indirectly impacts loan rates, right? They're not saying, hey, we're going to change the rate to 5%, so therefore mortgage loans are all of a sudden going to be 5%. No, that's not quite how it works. But because of their actions, it indirectly impacts everything else around it. They set the rules, though, for commercial banks. And in that, it's what's called fractional reserve banking, meaning banks only keep a small portion of deposits on hand. Historically, it's been about 10%. But as I mentioned a minute ago, technically they don't have to even keep 10% now, as of 2020. So the rest can all be lent out. So if you deposit $100, the bank keeps maybe 10 of that in reserve and then lends 90 to somebody else. Okay, that makes more sense, right? So if that's what's happening on the front end, how do we get to this idea of $100 was deposited and $1,000 ends up being lent out? The next step is when that person spends the $90 that they were lent, whoever receives the money deposits it back into another bank, which keeps $9 and lends out $81. Okay, so you see what's happening here? It started with $100. 90 of the $100 got lent out. That 90 then got deposited to another bank, which that bank repeated the cycle, and they kept 9 and lent out 81. So on the original $100, there's now been $171 that have been lent out. And that keeps happening over and over and over. So the cycle repeats itself, and that's how a single $100 deposit can ripple through the system and create up to roughly $1,000 in total loans. It's not that the extra $900 just appeared out of nowhere, but it's created through credit. So in short, banks create money by lending it. They don't just move money, they manufacture it. And that's why whoever owns the system always wins. So what does it mean then to rent your money? Well, most people store money in banks, borrow from those same banks, and invest through someone else's platform. Every step they pay rent, interest, fees, or lost opportunity. Their money lives inside of someone else's system. And whoever owns the system owns the outcome. It's like paying rent on a house you helped build, but someone else collects the equity. Okay, so banks don't store money, they multiply it. As soon as they take the money in on deposit, they're immediately turning that back around into loans that can go out to other people. And again, if you're earning half a percent, but then they charge somebody six or eight percent, and that money cycles six, seven, eight, nine, ten times, right? Because again, every time they get the money back, they can repeat that process. So they lent out 90% of what they just took in. It's not that the wealthy hate banks, they just learned to think like a bank, right? So they learned to build systems where money never stops working, but this time for them instead of just for the bank. It's not a bad thing that banks are there and they certainly exist to serve a purpose, and we need to utilize them. But the goal really is to figure out how we can take advantage of these systems to help us rather than only hurting us all the time. So when you rely on banks, credit cards, or investment firms for everything, you pay rent in three ways interest, fees, and opportunity cost. You lose control, you lose time, and you lose compounding. That's the price of living inside of someone else's system. If you save money, it grows slow. If you borrow, you pay fast. That gap, the difference between what you earn and what they earn is the bank's profit, right? Just like we talked about. The moment you start asking permission to use your own money, you've stopped owning it. Owning the system doesn't mean you're avoiding banks. It means creating a structure that mirrors what they do. But for your benefit, it's where your money keeps compounding while you're using it. So you get kind of the same advantage that the bank's getting because they're using that money and they're compounding that money. So liquidity, control, and growth stay in your terms. When you own the system, you decide what your money funds, how it flows, and who it serves. In past episodes, we have talked about the four pillars. What are those four pillars? They are structure, control, cash flow, and movement. When all four of those things align, you stop living in chaos and you start owning clarity. Which means, in this case, you stop renting your financial life and you start directing it. You start owning your financial life. So ownership isn't about more money, it's about more control over what your money does. Okay, so why are we talking about all this, right? Why does any of this matter and what can we do about it? Because it's it's kind of just a we'll call it a fact of life, if you will. Federal Reserve Banking exists. It's how we operate our money system here in the United States. Um, and it's just something we all sort of have to deal with. You know, I'm a big fan of controlling what you can control in your life. And this is an area where we can't control that system, but we certainly can do things to take advantage of the system and help it work for us and not against us. So there's a strategy that I personally use that already does this. It gives you the same advantages banks use, meaning liquidity control, and uninterrupted growth. And it's designed to keep your money working inside your own world. It's what I call family banking. In the next episode, I'll start to talk more about how to build it, right? So I'll get into more of the specifics of family banking, how it works, why it works, how we use it, you know, all of those little details. So you can't build wealth by renting your financial life. There is a time and there's a place for that, but it's something we have to graduate from, right? We graduate from renting our financial life to owning our financial life. Okay, so there's four main dimensions to our financial life. Dimension one is we have financial certainty. This is essentially we've gotten to a place where we earn an income, we're able to cover our expenses, and you know, we're we're living a relatively comfortable life. It doesn't mean we're financially free, it doesn't mean we're able to, you know, do whatever we want whenever we want, but we can kind of cover the basics. Then we move to dimension two. Dimension two is financial vitality. Now we've gotten to a point where we can cover all the basics, we can save some money, we can progress a little bit and work towards maybe some bigger goals. Then we move to dimension three. Dimension three is financial independence. So at financial independence, as the name would imply, we have a little more independence, right? We've now started to work towards some of our goals. We built up some freedoms, but we still have to rely on a job. We still maybe have to put our time in places that we wouldn't always want to put it, right? We don't have 100% freedom of time yet. Dimension four is financial freedom. That is where we actually get to a place of having total freedom of time. We can put our time where we want, when we want. We can do all the things that we want to do with our lives. If we want to travel, we can go travel. If we want to spend extra money on the kids or donate to charities or whatever, we can do those things because we've now created a system where our time is our own and we get to do what we want. So those four dimensions really apply here to what we're talking about, right? You can't build wealth by renting your financial life. So if you're not going to build wealth by renting your financial life, you've got to own the system. You've got to recognize that there are these different dimensions to our financial life, and then follow that pattern. As we follow the pattern, we can create systems and processes to get us through each dimension and get us where we're actually trying to go. The moment you own the system your money lives in, that's where freedom starts. You don't have to fight the banks, you just have to stop playing their game. Okay, so next time we'll talk about what it actually looks like to build your system, the foundation of family banking. Money is the tool, and purpose is the goal. If this helped you shift how you think about control, share it with someone who's tired of renting their financial life. And with that, we will see you on the next episode of Before the Returns.