During my time as a financial adviser, I learned that whether you have a million dollars or $100 dollars, you still need to save, invest, and protect what you have in order to have the opportunity at a better future. No excuses.
Most people never understand the importance of planning until it is too late. Planning does not have to be complicated.
But it does have to be intentional.
Many people warehouse money in different environments such as brokerage accounts, saving accounts, IRA, 401k, 529 and so on.
What I found after meeting hundreds of people face-to-face, belly-button to belly-button, is that they never really understood the best use for money. They put money into these accounts without fully understanding the reason they put it there.
Milennials especially say things like “an older lady at work told me I have to sign-up for the 401k so just did it.” Well that’s guidance if I ever saw it!
While I worked as an adviser, I was fortunate enough to be mentored on a weekly basis by some of the richest people I have ever met. One quote I heard about money that sticks with me forever is this:
“Invest like the wealthy, just with less commas.”
Chances are, unless you are Jeff Bezos reading this right now (Sup Jeff!) there is someone doing something with money a bit better than you. Whether its automating expenses and saving or investing consistently to take advantage of dollar cost averaging.
I look at saving money a lot like playing baseball. You may be really good at hitting, but you need to work on running.
I know some people who are great at making money, but terrible at putting into something that can grow in order to give them some kind of freedom.
Or, if you are the average American, you probably have some debt, and you are working hard for a paycheck to try and put some money towards your future. Whether it’s a house, a business, or a family the environments for money that the wealthy utilize may be at your disposal.
This quote means a few things:
- Start saving and investing significant amounts of money. NOW.
- Saving, investing, and insurance should be automated.
- Optimize Safe money to offset aggressive gains
- Track your net worth often
- Offset your accounts in order to diversify
- Intentional asset allocation is important
After working with some extremely wealthy people, I found that the most financially stable followed these rules and they had money in the following environments:
- Cash
- Equity
- Pension
- Insurance
Let’s dive into deeper into the 4 environments. For these explanations, I will speak in terms of saving and investing, not spending.
1. Cash Environment
Cash is king…sometimes. Cash is good for liquidity. It is great for opportunities like if you want to invest a property or other physical assets.
Cash has it’s downfalls. No Growth and you will lose money over time with interest rate risk and inflationary risk.
Cash can be inside of saving and checking accounts, brokerage accounts, whole-life insurance contracts, safes, and mattresses.
If you are serious about your future and not trading hours for dollars until you die, then keep reading! you will need more than a cash environment.
2. Equity Environment
Ownership. Buying Stock of a company such as Apple or Google, gives you a (very tiny) piece of the pie. You make money when they do (Profits) as passive income. (Make money without working for it!) This is a great environment for mid to long-term horizons.
Negatives to equity environments include potential for losses, volatility, fees, and lack of liquidity.
Equity environments can be found in brokerage/ advisory accounts, Roth IRA/ Traditional IRA’s, 401k, 403b, 401a, 529, are common example but there are a whole slough of other accounts.
3. Pension Environment
Ol’ Reliable. Remember those things your grand parents got for working in a union or corporation for 30 years? Long-term, steady, reliable income forever. These are like dinosaurs in businesses today. They found it much more inexpensive to give you a mediocre match on your 401k…
but you can still create pension environments on your own.
Annuities are an example of creating a pension. Basically they are insrance products against going broke. They allow you to create steady pension income by utilizing money you have saved up.
You drop it into an annuity which earns some interest and promises payout after 59 1/2 until death.
4. Insurance
Protection, Safety Net, Access. The hardest thing for Advisers, money gurus, traders, and hedge fund managers to do it optimize safe money.
Now, insurance has tons of different products, but the two reasons you should have it:
1. Protect everything you are creating and building.
2. Use intentionally designed life insurance contracts with access to money while you are alive.
3. Tax free, risk free, guaranteed growth.
Yes, its real. Rare, but real. This tool exists and once I learned the super rich use it, I had to get my hands on it.
Combine These 4 Tools
These tools are on this list because their application (with intentionality) can create a financial plan that is solid enough for the Warren Buffetts of the world.
The tools and accounts themselves are accessable to the common person trying to build net worth.
If you combine these 4 tools, it can keep you from sabotaging your own future by dipping into the wrong funds at the wrong time. It will keep you from taking on unnecessary debt when times get tough. It can protect you in the worst case scenarios such as death or disability. These four used together will also open up financial opportunities for you to take advantage when the time is right.
Live a Great Life 