Tag: money system

YOUR Wealth Generation Plan

This is another chapter in The Money System That Never Fails and finishes one of the most important parts of the book, your wealth generation plan. This section covers how to make it your own.

Remember, this is YOUR Wealth Generation Plan. Make it your own. While I provide my template and how I do it, change it up as you see fit. As long as you’re positively working on each of the four areas, to a lesser or bigger degree, then you will move in the direction you want to go.

The point of this plan is that you’re paying attention and working to optimize each area. Depending on where you are currently with your money, you have stronger and weaker areas. You also have areas where more can be done, and areas where you have less.

If you don’t make much income, and your expenses are high, then investing is not the most important thing for you to focus on now. Instead, it will be income and expenses. If you have a good income, and expenses are fine, then how you work with your savings and investing becomes much more important. Put your attention, action steps and goals there.

In a way, there is kind of a progression through this:

Expenses
Savings
Investing

Note that I do not include Income on this progression. That’s because it is the accelerator, regardless of everything else. Some people make tons of money and spend all of it and more. That’s the star athlete that lives big because of the million-dollar contract, but doesn’t have any money management skills.

Thus, the first step is to make sure that your expenses do not outstrip your income. This typically means cutting your expenses, as that is easier to do than earning more money (at least in most cases).

Once your expenses are under control, you start focusing on savings. Build up your savings. The best thing to do when you get a raise, or start making more income from anything else, is to not spend more, which is the natural human reaction. Instead, start saving more. Bump up your percentages or automatic investing.

After you’ve saved for some time, and start to have some real money, then you can start learning more about and participating in investing. There really isn’t any point in focusing on investing until you have thousands of dollars to do so.

With me personally, my expenses are managed well enough. I’m always tweaking the savings amount, working to move them higher and higher. Now that I achieved my big goal of buying a house, in addition to paying that off, I will work even more on the investing area, while still seeking optimization in all
others.

As such, this also means that all books about money tend to cover one or more of these areas. Besides what you’re reading now, I haven’t found many that talk about all of them, at least not with this same kind of clarity.

Where you are at will determine what you should additionally study. In consumer debt? Something like Dave Ramsey, where he talks about cutting out the lattes might be appropriate. Looking to grow your investing? That same book is likely not going to be so useful.

Wealth Generation Plan Review

I like to do this monthly. Other people, who aren’t quite as hands on with their finances, might be fine to just do it once a quarter. At some point, I’ll probably switch to that, but currently, I like to review it monthly, even if I don’t make any changes.

Reviewing your wealth plan means reading through it and doing the following:

Updating your strategies as needed
Crossing off To-Do’s and adding more, or changing as necessary
Crossing off Goals and adding more, or changing as necessary
Updating savings percentages and automatic saving/investing amounts
Updating any other details that need updated

If you do this, it means you’re constantly updating what you’re doing. Hopefully, you’re learning along the way, including from any financial mistakes, and thus you’ll get better over time. This plan is not a set-in- stone document, but something to evolve along with you. Over time it will be what gets you to wealth, hence the name.

In NLP, one of the maxims is that “There is no failure, only feedback.”

That’s why I call this The Money System that Never Fails. It’s not that you won’t make mistakes along the way. Or that you won’t learn new better things that can make this work better. It’s just that you follow the plan, and adapt the plan along the way.

Ultimately, it is this framework for a plan, covering the four major areas of money, that is why it is a
system that won’t fail. The only way for it to fail to work, is for you to fail to work with it.

For more The Money System That Never Fails is now available in paperback and Kindle at Amazon.

If you missed the first chapters you can view them here:

Defense – Savings & Expenses

This is another chapter in The Money System That Never Fails and continues one of the most important parts of the book, your wealth generation plan. This section covers the “defensive side” of the financial equation, with savings and expenses.

Savings

My savings strategy is as follows:

Save weekly for all savings accounts typically done on Saturdays. Savings in investments are done
automatically.

Pretty simple. Here is where you’ll determine which accounts you’ll save to: business (if applicable) and personal. Here is where you write in the percentages you’re using. There are sections for both the manual as well as the automatic savings. Alter this as you see fit.

Write any action steps you need. In the beginning, this will include setting up the accounts you need to use.

Write any savings goals you have. This may include getting up to a certain percentage of savings. This may include specific numbers in specific accounts.

Money System - Income minus Savings

Expenses

Here, my strategy is simple:

Work to minimize expenses and track monthly totals to keep an eye on them.

If you want to use a budget, here you can detail that. For instance, $XXX is used for food per month.
While I have budgeted in times past, I haven’t found that all that useful. What I have found is that as long as I track my expenses and make sure they’re not getting out of control, I don’t have to look at them except once a month.

Specifically, I use one credit card for each business, and one personally. I pay off the bill in full each
month. If ever I am unable to do that, then I take a closer look. When I had issues earlier, I wouldn’t use credit cards at all. More to be covered on expenses later.

As before, write any action items or goals you have in this area. This can include making specific
purchases you’d like to make.

This is the proper place to include charitable donations as well since they are a financial expense, even if they give you non-financial returns.

This is also the place to cover your tax strategy, as taxes tend to be one of the biggest expenses for most people.

For more The Money System That Never Fails is now available in paperback and Kindle at Amazon.

If you missed the first chapters you can view them here:

Offense – Income & Investments

This is another chapter in The Money System That Never Fails and continues one of the most important parts of the book, your wealth generation plan. This section covers the “offensive side” of the financial equation, with income and investments.

Income

In this section, and the ones to follow you’ll want to briefly write out your strategy in regarding that area. So, we start with your Income Strategy. How is it you’ll work on growing your income? For instance, for this year mine was:

Work on growing income daily through my main and side sources. A specific focus on building my salaries and distributions through businesses.

Write down all your sources of income. There may be only one, a paycheck, and that is fine.

There are a couple of ways you can look at this. One of the early books about money I read was Robert Allen’s Multiple Streams of Income. This idea is that you should have lots of money coming in from different sources.

On the flip side, there can be a drawback to scattering your focus. If you have just one much larger income stream, an income river if you will, it can be better than lots of trickling streams.

Adapt the template as you see fit. Include your main personal income stream(s). Write down any side streams you may have available to you. This can include selling stuff at garage sales, on eBay, or a moonlighting job you do. (Years back whenever I needed extra cash, I would unload various info-products and other goods on eBay.)

If you’re in business for yourself, include those income streams too. The distinction between this is what puts income into the business’s pocket, versus your own. If you’re not familiar with this distinction (and I wasn’t for many years), that will be covered more later.

Next, you have the To-Do section. Are there certain next action steps you should do to increase your income? This could include asking for a raise, or setting up a side hustle. What new streams of income might you be able to add? Lots of options abound.

Lastly, here you can go into more detailed goals, specifically about your income. More me, this involved increasing my salary from each business, as well as to setup a new business income stream (as an entrepreneur, I like to set up new things).

Investments

Remember, start off with your strategy. Here is an example of mine with investments:

I invest primarily for cash flow. My primary investments are my businesses, as that is where I can see awesome returns. But what is covered below is those hands free investments and storehouses of value. Buy a house before I start focusing more on investing. For each thing, figure out my Entrance and Exit Strategies, as well as any Risk Tolerance that must be figured in.

Remember earlier where I mentioned the difference between passive and active investments? Once again, passive investments don’t generate income. They may appreciate in value (or depreciate), and can then be sold, but they’re not actually building your income.

Meanwhile, an active investment does generate income. This could be a business that pays returns,
dividend stocks, bonds, even a savings account (however small that return is). It is really the active
investing part, or as I mention investing for cash flow, that gets investments put on the offense side of the money game.

Here, you will list out both active and passive investments you have. With the active investments, you can write the rate of return they generate. Write in how much of your income is transferred into these accounts, or whether they come from specific savings accounts.

And as before, write out any action steps and goals you have in this area.

For more The Money System That Never Fails is now available in paperback and Kindle at Amazon.

If you missed the first chapters you can view them here:

Your Wealth Generation Plan

This is another chapter in The Money System That Never Fails and starts up one of the most important parts of the book, your wealth generation plan. This “living” document was what turned around my finances for good.

I don’t remember who I got this from specifically, or if it even was from anyone in particular. It may have been from reading the 30+ books, and I came up with this idea myself. If you’re making a road trip, you better have a plan on how to get there. Sure, GPS is prevalent these days, but you still need a destination. Similarly, a good business will have a solid business plan, whether or not it is in the standard business plan.

And so it is to be with your money. The Wealth Generation Plan is your plan of action to cover each of the four areas of money: income, savings, expenses, and investments. It covers goals, action items, savings percentages, guidelines and more.

You can find a template for this here.

If you don’t want to use the template, then open up a word processor document and title it Wealth
Generation Plan. Under that write Last Updated: Today’s Date.

Creating a vision of your wealth is an important step. This topic will be covered in detail in an upcoming course, using what I call The Fractal Time Binding System (working title). For now, as you are writing your wealth plan, envision where you’ll be one year from now regarding wealth and money. Write out a paragraph or so that describes what you do with your money and how you feel about it.

For example, here was my vision for 2017:

My wealth has accelerated with ease. I continue to work and tweak my plan and with it in action. I generate more money and expend about the same (though more to charity). Mostly, I save lots and grow my investments, and so the cycle repeats. My skills in each of these areas has grown as the figures grow bigger too. I run my businesses with better accounting and both the business and personal books show it. Funds shifted in order to put a down payment on a house, yet the numbers caught up and exceeded those.

I do this exercise around the end of the year, in December, to get ready for the upcoming year. It’s far from a New Year Resolution, but instead a lengthy and far more effective process. Still, you can do it at any time. If you do engage in something like that around the New Year and right now it’s June, go ahead and create your vision and goals for the rest of the year.

Now that we have a vision, what are your goals? Would you like to have a certain net worth? Get out of debt? Save a certain percentage of your income? Make a certain amount passively off of investments? While these and similar questions may be covered in the vision, I see a goal as something more specific that you can say is achieved or not achieved. (There is also a net worth calculating spreadsheet inside the templates.)

You’ll notice that my vision is more feeling based. Although there is talk of bigger numbers, it is devoid of any real specifics. When it comes to goals they must be specific. Without giving you specific numbers, here were my main financial goals in 2017:

Buy a House
$XXXXXX Net Worth
Personal Income baseline of $YYYYY/month
Regularly save 50% of income
Make $ZZZZ off of passive investments

(Note: I tend to be aggressive in my goal setting. I realize I do this, and often fall short, but it keeps me moving in the right direction. At the time of writing this (in December of 2017) I have hit two of these goals.)

While it can be fun to imagine having a million dollars cash a year from now, if you’re under a pile of debt now, making minimum wage, please be a bit more realistic with your expectations. You want your vision and your goals to be motivating and drive action, not demotivating, fanciful dreams.

Write down three to six goals having to do with money. You might think about each of the four categories. What is your goal for your income? What is your goal for your expenses? What is your goal for your savings? What is your goal for your investing?

The vision and the main goals is the first page of your Wealth Generation Plan. At a quick glance, you can see everything. Then, on the following pages, we go into more detail about each of the four areas of money. Each one of these is then contained on one page.

For more The Money System That Never Fails is now available in paperback and Kindle at Amazon.

If you missed the first chapters you can view them here:

Automatic vs. Manual Savings

We continue in The Money System That Never Fails with how to maximize your savings, one of the most crucial elements of the overall system.

The Money System That Never Fails is now available in paperback and Kindle at Amazon.

If you missed the first chapters you can view them here:

Should you be manually making these savings transfers? Yes, and let me tell you why. You want to get into the habit of it. What you put your focus on tends to grow. Therefore, paying attention to your savings accounts by adding money to them each week, you’ll watch them and begin to feel awesome about what you are doing with your money.

Because generating wealth, of which this is the foundation of, is fun to me, my weekly savings transfer is something I look forward to doing.

Being in business for myself, how much money I made did change, sometimes dramatically from week to week, I had to do this manually. But even if you get a paycheck, I would still recommend doing it manually too.

In fact, when I came out of that frustrating period of where I was determined to figure money out, I
transferred money into my savings, according to percentages, every single day! Why? Because it was about the habit, and the energy of seeing the money grow. I don’t remember how long I did this, before I felt like I got what I could out of the process, and it was just became a burden on my time. Then I switched to just once a week, and have been doing so ever since. The routine was firmly established, and now I look forward to doing it every week.

That being said, there is a time and a place for automatic savings too. In some of my investment
accounts, like I mentioned with Bitcoin, but also my stock account, I have a set amount, like $100, that gets transferred each month. No percentage here, but a flat amount. This is a little bit different. From income, it is going to investments, not savings, and, although the line can be blurry between these, that is the key difference.

For some people, doing it automatically may be the better option, as out of sight, out of mind. I don’t agree with that, because you shouldn’t be blind about your money, but if it works better for you go for it.

Money System – How to Maximize Your Savings

We continue in The Money System That Never Fails with how to maximize your savings, one of the most crucial elements of the overall system.

The Money System That Never Fails is now available in paperback and Kindle at Amazon.

If you missed the first chapters you can view them here:

I just covered three necessary savings accounts, and six optional ones. First off, you may be thinking that that is a lot of accounts! And it is compared to an average person. But the question to ask yourself, is do you want average results? If we look at wealthy people, we’ll typically see money spread out in many different places…and this is before we even look at investing or business accounts!

Remember that most of those were optional. It is better to start on the easier side, and go with just those three essential accounts. Once you’re used to the system, and saving, then you can add more later.

The main question to ask is, “What percentages go into these savings accounts?” Along with that, you may be thinking: If you have all these different accounts and you’re saving to each one of them, how is there anything left to live on?

The answer is by starting small. There is a systematic flow to all of this. The flow is like this:

Remember, the savings must come off the top for this system to work. That is part of what makes it never fail.

If you’re currently living paycheck to paycheck like most Americans, or even worse, living off 110% or more of your income by using credit, this can be a tough pill to swallow. In these cases, you need to start real small. But you will still start saving.

When it comes to the Wealth Capture account, the standard number used is 10%. So, 10% of your income goes into savings. If you are not currently saving that may be a big chunk. And you may feel the difference when you start doing.

The most important thing (in the beginning) is not the amount, but the habit of doing it. If 10% is too much you can do 5%, 1%, even a fraction of a percent. If you’re up to your eyeballs in debt, just do ½%. This amount isn’t going to make a difference to you, nor the creditors, but the act of doing it can begin to turn things around, because of how it changes your habits, your mindset and your relationship to money.

The fact is, when you’re starting out, it is best NOT to feel the pain of savings. If it is a noticeable difference, you’re more likely to tap into it, or abandon the system. If you have to struggle to save, you’ll likely quit at some point. But if you can do it effortlessly, it is more likely to stick.

Then over time it builds. You increase your savings by a percentage point here and there. Once the amount starts to grow it is hard to not get excited by it and want to do even more. And once you really get going, 10% is too small. If you’re doing well, you can go with 15 or 20%. With these larger amounts, aggressively saving, you can watch your wealth soar.

But the Wealth Capture account is just one of several accounts. What about the others? They don’t all need to be 10%, nor the same amount. Some of them, like the SHTF fund or the Health Savings Account, also have a cap on how much you need or can put into them. You have to look at several factors.

As an example, currently I am putting 20% into my Wealth Capture account, 3% into my Vacation account, and 3% into the SHTF fund/Save to Spend combo I previously mentioned.

When you’re starting out, if you can only put ½% into each of these three accounts, that’s what you’ll do. Just know that it will grow over time.

Right now, making these transfers is one of the first things I do every Saturday morning, for the income that came in the previous week. If I happen to be traveling, or otherwise unavailable on that day, I’ll do it as soon as I can.

I use a spreadsheet to total up the income I made both personally and in my businesses. Using formulas to calculate the percentages, these then get totaled and I know how much to move into each account. You can find a copy of the Weekly Savings Template here.

Note that you’ll find a simple version in the first tab of that, and a more complex version complete for businesses in the second tab. We’ll revisit the details of that later.

My big aim is to save 50% of my money. I was doing this for a little while earlier, but my expenses have since changed. Now, this wasn’t all permanent savings. Some of the savings are earmarked for later expenses, but still it is fun to see how quickly your wealth adds up when you aggressively save like this.

I think 50% savings is a good goal for anyone to aim towards. But please, do not jump into doing this. Let the snowball roll until it grows and begins an avalanche.

Remember you need multiple accounts, one for each specific purpose. You can use your own bank. You can use multiple banks. Personally, I have most of my accounts at https://www.marcus.com (and this is where I’ve been setting up the latest ones).

It is easy to set up. The online portal is easy to use. And, at the time of writing this, they give 1.4% interest rate (actually it looks like they just raised it to 1.5%). While this isn’t great, it is far better than most banks offer. By all means, if you have a local credit union, or something else that offers something better go for it. But at the time of writing, this is my current recommendation.

Money System that Never Fails – Optional Accounts

We continue in The Money System That Never Fails with the Optional Accounts that can be used in addition to the Essential Accounts.

If you missed the first chapters you can view them here:

The preceding four accounts are the basics. If you do nothing else, get these accounts up and running. However, there are some additional accounts that you may want to use for a variety of reasons. Here are just a few ideas, though this list is by no means exhaustive.

Once again, if you have these accounts, it is important to make them physically different accounts at your bank (or banks).

Save to Spend

Got something specific you want? Make a savings account just for that purpose. This can be for anything, like for educational expenses, a car, a wedding, starting a business, that big dream you’ve always wanted or anything else you desire. Instead of taking a loan, why not save enough to buy in cash? You can have as many different accounts for different purposes as you’d like.

[Advanced tip: This can be combined with the SHTF account. When you get past 6 months of savings, or whatever goal number you set, then you will continue to save in this account. That extra money can then be used as a savings place for bigger purchases you’d like to buy, but require saving up for. It becomes the Save to Spend account, in addition to the SHTF fund, as long as you don’t go below that baseline number you require, as outlined in your Wealth Generation Plan.]

Cash Account

In addition to the SHTF fund, it is good to have a supply of cash at your house for emergencies. One months’ worth of expenses is recommended. This can be a good thing to build up and have on hand. Of course, keep it somewhere safe, like in a safe!

Charity

Often recommended is to save 10% of your income and give away 10%. This can be tithing, or giving to any charity you see fit. How does giving away make you wealthier? Someone put it best, “The hole you give through is the same hole you receive from.” A lot of people say they’ll give when they have money. Well if you can’t give $1 today, it’s much harder to give away $100,000 then. While this giving can be done right off your income, it can also be saved then given away in chunks.

Personally, I have a recurring monthly charge to my charity of choice, so it is an expense, and I am not saving. But the choice of how you do it is up to you.

Health Savings

Health expenses come up from time to time. Even with insurance we often need to cover some of the costs. But now some insurance plans come with health savings accounts (HSA) or flexible spending account (FSA) that also provide some tax benefits. If you have one of these, it is highly recommended you fully fund it each year. At the time of writing this is $6750 for a family per year that can be contributed to an HSA.

Gambling

Do you like to gamble? Not necessarily at a casino, but with riskier investments? Why not set aside some money that you are not afraid to lose specifically for this purpose. For the person that needs some more excitement than safer, solid investments, this can be crucial. Instead, of trying to fight your nature, just make it a bit more controlled. For instance, I put some money into Bitcoin, realizing this was speculative, but wanting to do it. In my case I made about 10X, but I would have been okay if it had gone down to zero, because it was money earmarked for this sort of speculative gambling.

Taxes

If you’re being paid by paycheck, the government is already taking money off the top. Why do they do this? Because they know, with many people, it would be the only way they’d receive it rather than collecting it after the year is up, since most people don’t save. If you need to save for taxes, I’ll address the topic more in the business section (because having a business, or at least investments, is where you’d need to do this on top of your paycheck).

Money System - Income to Savings Accounts alt2

The Money System That Never Fails is now available in paperback and Kindle at Amazon.

Money System that Never Fails – Essential Accounts

We continue in The Money System That Never Fails with the Essential Accounts required.

If you missed the first few of parts you can view them here:

Income/Expense Account

You probably already have this. Most checking accounts would fit this definition. This is where your income comes into in the first place. It is where expenses go out of. If you’re like most people, you probably put most expenses on a credit card, which is fine as long as you use them responsibly. But this is the account from which you pay that credit card bill.

You only need one expense account personally. However, you may have more than one. For instance, a Paypal account, could be an additional expense account to your checking account.

Wealth Capture Account

If you have one and only one savings account this would be it. I got the name “Wealth Capture” from Garrett Gunderson. I’ll talk more about what I learned from him and his team in a bit. I like the name because this is where you literally are capturing your wealth.

Wealth is defined as “an abundance of valuable possessions or money”. Here you capture some of all that money that passes through your hands. You capture it for good.

Another quote from The Richest Man in Babylon: “Wealth, like a tree, grows from a tiny seed. The first copper you save is the seed from which your tree of wealth shall grow. The sooner you plant that seed the sooner shall the tree grow. And the more faithfully you nourish and water that tree with consistent savings, the sooner may you bask in contentment beneath its shade.”

Another name I’ve heard used is “Freedom Fund”. This is because, ultimately, this account helps buy your freedom from having to work.

You pay yourself first into this account. In the beginning, you just keep it here. Eventually, you begin to invest it…but only in safe ways. The point is that you’ve captured it, and you don’t want to lose any of it. You do things that keep the money, but put it to work to grow it further. Over time it will grow via interest and your continual adding to it.

I would advise, that even if you have a retirement account, such as a 401K, you want to have this account in addition. Why? Because chances are you aren’t in control of the 401K, the market is. (Not to mention many of them are riddled with hidden fees that will kill your growth.) I saw my mom’s 401K turn to half of what is was in 2008, right at the time when she was getting ready to retire. Your wealth capture account can be used for retirement, in addition to a 401K or other retirement savings if you have them.

But in your earning years, this is the savings that you DO NOT TOUCH. Not for something you want to buy. Not for some shit that hits the fan. Not for a vacation. Nothing. (That’s what the other accounts are for!)

The only place you may shift this money is into guaranteed investments. Those are few and far between. This is money you keep. It is not to be risked at all.

This can be the tough part, especially if you are in debt. So, we will cover what to do in those cases later. To reiterate the importance of this account please copy by hand the following:

I Will Not Touch the Money Inside My Wealth Capture Account.
I Will Not Touch the Money Inside My Wealth Capture Account.
I Will Not Touch the Money Inside My Wealth Capture Account.
I Will Not Touch the Money Inside My Wealth Capture Account.
I Will Not Touch the Money Inside My Wealth Capture Account.
I Will Not Touch the Money Inside My Wealth Capture Account.
I Will Not Touch the Money Inside My Wealth Capture Account.
I Will Not Touch the Money Inside My Wealth Capture Account.
I Will Not Touch the Money Inside My Wealth Capture Account.
I Will Not Touch the Money Inside My Wealth Capture Account.
I WILL NOT TOUCH THE MONEY INSIDER MY WEALTH CAPTURE ACCOUNT!!!

Do you get the point? While I learned the principle of saving early on and did that, I got this part wrong. I kept touching my wealth, depleting it to zero then having to build it back up. I did this times beyond count. Please learn from my mistake.

Part of what made it so that I no longer did this wrong was by having the other accounts. Part of it was in getting out of debt and learning to manage my expenses properly. All in all, it was in having the Wealth Generation Plan in place that guided me in all of these things.

If you find that you end up touching this money there are a few things you can do. Here is a time when you may want to use an account that is hard to access. If you have to go to the bank in person this will be an added hurdle that will at least slow you down from getting access.

I’ve heard a story before of a financial planner making his client who kept touching this account, setting up a new one at a bank that wasn’t even in the state they lived in. While they could transfer money in easily, they had to show up in person in order to make a withdrawal. If you need to do something like this, then do it. It is that important.

SHTF Account

SHTF stands for “Shit Hits the Fan.” Problems arise in life (car breaks down, medical bill, etc.) This fund is aimed at keeping 3-6 months’ worth of living expenses. Some people like to have even one-year worth of expenses. This provides a financial safety cushion. Another name for it is the “Rainy Day Fund.”

When this is kept, and you have a decent balance in it, you won’t feel the need to ever tap into your Wealth Account either. That is part of why this account is essential.

It is not just for the financial effects. By having the account, your psyche benefits too. While it will suck when an unforeseen big expense comes up, with this account funded, you’ll be able to handle it without missing a stride. If you lose your job, or your business goes under, you will be able to get by. You’ll have the money needed to live while you get back on your feet.

Fun/Vacation/Enjoy Life Account

It is important to realize that money is to be enjoyed. This fund is expressly for that purpose, to use money in bigger and more enjoyable ways than your average everyday spending.

My friend Garrett Gunderson calls this the “Living Wealthy Fund”. I personally use this specifically for vacations, though you can use it elsewhere.

The point of this account is for you to get pure enjoyment out of money. Recently, I took my wife on a European vacation. This was more money than I had ever spent on a vacation, but we were able to live fully and enjoy it, not trying to get by on a budget, because it had been saved specifically for this.

Having this account is essential because I wouldn’t say you’re wealthy or successful if you act miserly with your money. If you only ever exist on a budget, and can’t enjoy life, then what is the point? By having this as an essential account, you get to enjoy your money.

Money System - Income to Savings Accounts alt

The Money System That Never Fails is now available in paperback and Kindle at Amazon.

Mental Accounting and Different Perceptions of Money

We continue in The Money System That Never Fails with Mental Accounting and Different Perceptions of Money

If you missed the first few of parts you can view them here:

One of my favorite books on money is Inside-Out Wealth, by L. Michael Hall. Hall is one of the best writers and teachers of NLP (Neuro linguistic programming). In this book, he details his journey to making millions and applying the methods of NLP modelling to look at it. It is a detailed and complex book, but worth spending time with.

Money and wealth are both abstract words. While a hundred-dollar bill is something you can carry, “money” itself isn’t. Even more so in this day and age, our money is simply digits on a screen. There isn’t “your cash” sitting inside of a bank vault somewhere. (For every dollar in the bank, in the USA, they’re only required by law to keep 10 cents there.)

Thus, when two people speak about “wealth” they can have very different numbers in their head of what that looks like. Ultimately, there are different images, sounds and feelings that go along with that wealthy lifestyle too.

When we say money, what kind of money are we referring too? We already covered four different types: income, expenses, savings and investments. When you hear or read those words, you may picture those quite differently than if I say “money”.

This is why it is important to get to concrete numbers in your planning. Further, with money we can attach all sorts of other meanings. The chart on the following page comes from Hall’s book, showcasing different frames of money we humans tend to think in.

Have you ever got a bonus or tax refund and felt you deserved something special? Contrast this to your normal income and you can see we easily think about money differently.

How much easier is it to put something on a credit card than to pay with actual cash?

That we treat different types of money differently shouldn’t surprise us. But most people miss this critical distinction. In the end, you shouldn’t fight this. Instead, harness and use it in a systematic way.

Inside Out Wealth Different Kinds of Money

Since we put money into different mental accounts, it’s just a part of human nature and how we think, why don’t we just extend this to physical accounts too? Almost every writer or speaker on the topic of wealth discusses this. Why? Because it works. Find the right model, the right amount and purposes of accounts to suit you.

For the reasons just discussed, it is important to match the real world to your thoughts. We do this by actually setting up different bank accounts for different purposes.

Money that gets commingled gets spent in commingled ways. If both serious and fun money are in the same account, you’ll have no idea which is which. Separate accounts allow you to easily and without effort separate out what that money is for. It gives the money an explicit purpose as is defined by what the account is for.

Ease of use and transferring is important. While we’ll address the specific cases in which you might want money to be hard to access, in general, you want it to be easy.

First, we’ll cover the essential accounts. Then, we’ll move onto the optional accounts. Later on, in the book, we’ll address business accounts. (Even if you don’t own a business, this still might interest you for someday, or just to see the same principles working in something bigger.)

The Money System That Never Fails is now available in paperback and Kindle at Amazon.

Most Important Part of the Money System

We continue in The Money System That Never Fails with The Most Important Part of the Money System.

If you missed the first couple of parts you can view them here:

This system started with the book, The Richest Man in Babylon by George S. Clason. This old classic can be found for free online in many places online such as this link here.

The first chapter is the most important but it all is worth reading and re-reading. It’s about paying yourself first, i.e. saving. The is probably the most important principle of money there is, period.

The principle is this: “A part of all I earn is mine to keep.”

This is counter to Parkinson’s Law, which originally meant “work expands so as to fill the time available for its completion”. This applies to money as well, in that the more money we make, the more we typically spend. Most people these days are spending more than they’re making with the pervasive use of credit. And our governments certainly aren’t good role models either.

Instead of fighting the natural urge to spend, by paying yourself first, you’ll be saving despite Parkinson’s Law.

This is how most people handle money (and how I did for years):

Money System - Income minus Expenses

Typically, this doesn’t leave much left in savings, if anything. Once again, many people spend all that they make, thus there is nothing left on the right side of this equation. This is living paycheck to paycheck.

But this equation can be easily flipped, by utilizing this foundational principle that allows wealth to build.

Money System - Income minus Savings

We simply take the savings out of the income, off the top, and then spend what is left. It really is that simple.

“A part” – We’ll cover how much shortly.

“of all I earn” – From your income.

“is mine to keep” – Gets saved.

That also means, the other part, is what is left over for spending for both the necessities and the luxuries.

I knew of this principle long ago. But I made some errors in dealing with it. And I realized that, for most people, for it to actually work, there needs to be a few different types of savings. Then money must be saved in specific ways for you to benefit from this principle.

However important saving is, it is just one factor of many. While we can save our way to millions, it is by no means the most interesting aspect. It must be balanced, with the other areas of money too. Eventually, once your savings grows it will look like this:

Money System - Income minus Savings + Investments

That will be discussed more later. Notice that there are four different types of money here already referred to in the last section.

The Money System That Never Fails is now available in paperback and Kindle at Amazon.