This is a great message about the importance of building cash liquidity to invest and build your practice. Structuring savings buckets and cash reserves is crucial to achieving financial success.
Chris Ellington, Senior Partner, WealthCreation Atlanta
“I want my money to be like a river, not like a pond.”—Lisa Sasevich, Inc. 500 Business Owner
We’re tired of “investing” being equated with the stock market/ mutual funds! Wall Street is NOT the only option!
Accumulation does NOT necessarily equal wealth and prosperity!
Financial planning teaches us to “Accumulate first, then Disburse.” Save and invest to accumulate ample assets – generally in a 401(k) and other assets based largely in stocks and mutual funds. Then someday, when you accumulate “enough” money in your accounts, you can stop working, begin the distribution phase, and live off of your assets (or the interest your assets produce).
In Busting the Retirement Lies, Kim Butler details why this thinking is so harmful and shows other options. Today, we just want to look at one little piece of the formula: the idea that accumulating money should be our primary financial goal.
Accumulation is the goal of most investors.
Every dentist desires to have enough money, though there is much debate about how much is “enough:’ People strive to accumulate an amount of money that means they will never have to worry about money again – or
at least, they’ll never have to move in with their kids!
But some believe that the ”Accumulate first, then Disburse” model is misleading.
Why?
First, because it relies on guesswork and speculation.
How do you know you’ll have “enough” money? Well, typical financial planning relies on solid mathematical formulas… formulas need numbers, but the numbers are often speculation.
Do you see the problem!?
Secondly, because CASH FLOW is what we actually live on.
As a matter of fact, many people are AFRAID to spend their principle! We see this all the time – doctors accumulate many thousands, perhaps even millions of dollars, but are afraid to USE their own money!
You’ve heard it said that “It doesn’t matter how much you make, only how much you KEEP:‘ But the truth is, It doesn’t matter how much you make, how much you keep, or even how much you save – it only matters how much you can SPEND after you’ve earned it and saved it!
If the purpose of accumulation is to provide income in later years, why not concentrate on strategies to generate cash flow? But typical financial planning TELLS us to accumulate the biggest possible pile of money.
Third, accumulation isn’t the same as a financial strategy.
It keeps money stuck, trapped, and inefficient…What’s the alternative?
USE your MONEY! And maybe your practice is the best destination.
Move money THROUGH your assets, not just TO them!
Money is a lot like water. It stagnates when it sits. It becomes unproductive, useless and goes to waste. You want to keep water moving and flowing!
Just as LIFE depends on the movement of water… evaporation, rain for crops, flowing rivers for fish, water for drinking and usage… so Financial Health depends on the movement of money.
You may be aware that consumer spending – movement of money – makes up the MAJORITY of our economy. But we’re not trained to move money in our personal economies; we’re taught to accumulate it and let it sit
in various types of accounts, sometimes unused for decades!
Savvy business owners, corporations and bankers know how to keep money in motion. If banks acted the way we are taught to act, they would keep all of their deposits sitting in the vault unused! And they’d go out of business, unable to compete or turn much of a profit.
Of course, banks USE it, leverage it and multiply it, and generate profits…
People think that when banks pay us 1% on our savings and allow us to borrow money at 4%, they are earning 3% on that transaction- 4% earnings subtract 1% cost. This is NOT correct. When a store owner buys a widget for $1.00 and sells it for $4.00, they are enjoying a 400% mark-up!
It is the same with banking. When the cost of attracting dollars is one-fourth the cost of loaning those dollars, banks are enjoying a 300% gain, earning $3 for every $1 they have.
Moving Money THROUGH Assets
Infinite Banking, a concept popularized by author Nelson Nash, teaches us to move money through assets suchaswholelifeinsurance1• Movingmoneyincreases its velocity and accelerates wealth-building potential.
Will you need new operatories in a few years? By saving the money in a cash value account then financing your equipment (either through the insurance company or through a bank, using the cash value as collateral), you get your equipment AND you get to keep your savings working for you, long after you pay back the loan you make to yourself.
You can let money “sit” and accumulate in your cash value account and you will experience safe, steady, modest growth. But the secret to accelerating wealth- building? USE your money! Follow the example of how banks make money and move money THROUGH your accounts.
Find reliable investments where you can generate returns, pay off or avoid using high interest credit cards or equipment loans, put a down payment on a second location where you can benefit from your expertise.
By using your money wisely – rather than just letting your banker or brokerage house use it – you can:
- Grow Your Asset Base. Use money from one asset to purchase another asset.
- Increase Your Cash Flow through Leverage.
When you purchase a cash-flowing investment (perhaps a private mortgage contract, a cash-flowing investment property, even loan a family member money at 10% so they can pay off their 19% interest rate credit card), you increase your spendable
cash flow. - Potentially Build Wealth through Diversification.
Think ownership, not accumulation to maintain assets instead of dollars. - Decrease Taxes. By moving money from regular income to capital gains, you can lower your taxes.
- Control Your Money. Prosperity is not measured by how much money you have, but by how much FREEDOM you have with your money.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable,please note that individualsituationscan vary.Therefore, the informationshould be relied upon only when coordinated with individual professional advice. Links to external sites are provided for your convenience in locating related information and services. Guardian, its subsidiaries, agents, and employees expressly disclaim any responsibility for and do not maintain, control, recommend, or endorse third-party sites, organizations, products,or services, and make no representation as to the completeness, suitability, or quality thereof.
1. Whole life insurance is intended to provide death benefit protection for an individual’s entire life. With payment of the required guaranteed premiums, you will receive a guaranteed death benefit and guaranteed cashvalues inside the policy. Guarantees are based on the claims-paying ability of the issuing insurance company. Dividends are not guaranteed and are declared annually by the issuing insurance company’s board of directors. Any
loans or withdrawals reduce the policy’s death benefits and cash values, and affect the policy’s dividend and guarantees. Whole life insurance should be considered for its long-term value. Early cash value accumulation and early payment of dividends depend upon policy type and/or policy design, and cash value accumulation is offsetby insurance and company expenses. Consult with your Guardian representative and refer to your whole life insurance illustration for more information about your particular whole life insurance policy.