What is Financial Innovation
any amount of income, if the expenditure is greater than the income, financial position will be a deficit. That means that some needs will be financed by debt. Thus, there is no source of funds that can be used to improve the asset. That there is a gradual decrease in wealth due to asset will be used for debt payments.
Therefore, the level of a person’s true wealth is not measured by the amount of income, but rather depends on the character of earnings management. In short, whatever his little income, it is possible to get rich if you are willing and able to innovate in financial management.
What is financial innovation? Simple it is to do different things in financial management. For example, if most people use credit cards to get into debt, in the corridors of financial innovation, the use of credit cards is to take advantage of grace payments so you can use the funds of others, within a certain time without any cost.
So, if you shop today and then pay it off before maturity, means you can get extra cash flow in this period, which can be used for various things.
Imagine, if you can buy goods at a price of “X”, for example, and then sell it back at a price of “X” plus a profit, you have to do business without capital, and even earn a profit. In other words, debt is used for productive activities is one of financial innovation. Moreover, if the debt itself is obtained without any costs, such as the use of credit cards on top.
What if the debt interest costs rise? It does not matter. Along the interest cost is still lower than the benefits, you still belong to the innovative. So, in sum, develop an asset could be done without capital. Was obtained from the debt capital. Then used to conduct business. And business results are able to provide higher returns than the cost of debt itself.