Three types of money


Imagine you have a circle, now divide the circle into three equal pie shapes. This represents the three types of money. No. 1 Accumulated Money, No. 2 Lifestyle Money and finally No. 3 Transferred Money. Accumulated money represents the money you currently have saved and other money you will save in an effort to reach your goals. The focus is usually trying to find better investments that pay a higher return often requiring you to assume more risks.

Lifestyle money is what you spend to maintain your standard of living. In order to increase one’s wealth with lifestyle money you will have to cut back on some of the things you enjoy doing today in order to have more to put away for the future.

The last type of money is Transferred Money. This is money that you are transferring from your wealth Unknowingly and Unnecessarily through taxes, interest, not owning the right financial products, fees, non-deductible debt and other financial costs.

Consider a family that makes $75,000 per year and they are saving $6500 toward their financial goals. Now suppose that this same family is unnecessarily transferring 1 percent, 2 percent or more of income to unknown financial costs. In this example let’s use 1 percent of earned income that is being compromised without one knowing the error of their path. This represents $750. Now do the math, $750 represents 11.5 percent of current savings. Two percent or $1,500 represents a 23 percent return/recovery of new found wealth and yet this was done without assuming ANY additional risk. In fact this strategic philosophy reduces one’s overall risk because wealth is being recovered that was at 100 percent loss.

Up until now the focus has been that one must get a higher yield in order to build wealth. Compare the 2 percent difference on achieving 6 percent yield vs. 8 percent. On $6500 of savings it yielded an additional $140. To achieve this one must assume greater risk and hope that they can sustain the higher yield over time. Reducing 2 percent of wealth transfers recovered $1500 that can be used to build wealth more efficiently.

If you desire to build more enjoyable wealth and have more spendable income, one must be open- minded to explore alternative methods that utilize economic principles and more efficient wealth strategies.

Next tiem, we start a new series on “The Money Matrix.” We will discuss what characteristics would be necessary in order for one to have the “ideal” investment strategy?

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Steve Temple is a senior partner with Ohio Financial Center with locations in Dublin and Troy. With 22 plus years in his industry, he has written numerous columns both locally and nationally.

Steve Temple is a senior partner with Ohio Financial Center with locations in Dublin and Troy. With 22 plus years in his industry, he has written numerous columns both locally and nationally.

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