What’s Your Personal Financial Style

Why earn money? Most of us don’t think that question through very far and we end up doing things that don’t work well.

You could earn money for two reasons:

  1. To spend it
  2. To use it to build more

Most do it for both reasons and the allocation between them is a matter of taste. Lifestyle versus wealth. The mixture defines your style.

Here are questions that will help you decide if you are likely to have a great fortune, a small fortune or no fortune.

  1. Do you think $10,000,000 is a lot of money?  If you had that much would you stop working? If you decided you will stop working because it is enough you tend to see money as a tool for consumption. People who think $10 million is enough can never reach $100 million. They lack the psychological tools. What is interesting though is that they probably can’t get to $10 million either. The tools to get to $10 million are not very different from getting to $100 million.  These folks will likely top out with enough wealth to support their lifestyle and not a lot more. 
  2. People with great wealth use money to keep score, not so much as a thing on its own. Do you?
  3. Do you live out of earnings or out of a bank account? Do you spend what is available and wait for it to replenish or do you spend within the income? People who spend whatever is available will build little wealth.  Capital is a significant variable in the equation of wealth building. It cannot be overlooked. Getting money is not the same as earning money.  These people often have not found the difference.When the sub-prime mortgage business crashed, people in the business found that sub-prime was not simply prime with a higher failure rate. That was the flaw in their models. It was an entirely different approach.  Subprime people relied on getting money to make payments. Another credit card for example. Prime borrowers relied on earnings to make payments.  There was a hidden negative variable in the subprime portfolio.  If a subprime borrower could not borrow more, they could not make the payments. Prime borrowers would only be unable to pay if their income source stopped.
  4. Are you impatient? Wealthy people know the value of time. Warren Buffett has said that the stock market is an engine that transfers money from impatient people to patient people. $1,000 invested at 10% is $45,000 in 40 years, But it is only $2,600 in 10 year and people quit. Impatience destroys the long term and that is where all the money is made. At 10% money doubles roughly every seven years. In our 40 year case, the last seven years makes more money than the first thirty-three. You can see how impatience works against you.
  5. Do you procrastinate? Procrastination is the thief of time and time is where the money lives. As in point 4) if you don’t get around to starting for seven years, you don’t lose the first seven years of growth, you lose the last seven.  Half the potential.

We are all victims of our acquired styles. Sometimes all that is needed to change is identifying your tendencies.  Sooner is better. Now is best.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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