By Kim Butler
In a recent survey, our readers expressed an interest in nuts-and-bolts advice. We’ve also been exploring Partners for Prosperity, Inc.’s 7 Principles of Prosperity. Today, we want to bring it all together by offering a summary of the principles, along with specific action steps for managing your assets to accelerate wealth-building.
Each principle is summarized below, along with an understanding of the problem it solves, and several action steps you can take to put it into practice. To find out more about any of the seven principles, just click on the capitalized word in each principle.
Prosperity Principle #1: THINK from a Prosperous Mindset.
The Problem: When we see “scarcity” as the basic truth of our world, we operate from a poverty mindset that leads us to poor financial habits and decisions.
The Principle: Our ultimate results will come from our thoughts, our beliefs, and our consciousness about money.
-Work on your personal development and mindset – YOU really are your most valuable asset, and your thoughts determine your results!
-Don’t hoard money, use it! Hoarding money comes from a scarcity mentality, not a prosperity mindset.
-See prosperity as more than just money. Thinking holistically and living in gratitude is important at all times, but it’s critical when cash flow or assets are impacted by job losses or crisis.
-Your finances will recover much more quickly if you continue to think from prosperity and abundance.
Prosperity Principle #2: SEE the Big Picture of Your Personal Economy.
The Problem: Sometimes we try to do the “wrong” things in the “best way” when we’re not looking at the whole picture! For instance, we compare interest rates or quotes on car loans, life insurance or savings rates at banks, without first asking how a car loan, a certain type of insurance, or a CD affects the rest of our personal economy.
The Principle: We must see and consider our whole economic picture and how the elements affect each other. We have to look at the forest, not simply the trees.
-Understand that everything is related and connected in your personal financial “ecology.”
-Don’t look at the rates and impact of any individual debt, investment, or even “purchase with cash” strategy without considering how the puzzle pieces of your financial puzzle fit together.
-Ask an advisor to help you run the numbers on the impact a financial decision will have on your overall prosperity.
-See the big picture of how the remaining principles can work together to create “out-of the-box” strategies, such as buying a house to get a boat!
Prosperity Principle #3: MEASURE Your Opportunity Costs.
The Problem: Most of us have never been trained to consider the cost of our money in financial equations. Nelson Nash said it well in Becoming Your Own Banker: “You finance everything you buy. You either pay interest to someone else or you give up the interest you could have earned otherwise.”
The Principle: We must measure and consider opportunity costs in all financial decisions.
-Ask an advisor to help you understand the hidden costs of saving to buy cars and similar purchases with cash.
-Measure the real costs of paying down your mortgage early to “save on interest” by considering opportunity costs.
-Consider the opportunity costs of term insurance payments. Utilize permanent life insurance as much as possible to ensure that your premiums are not wasted.
-You may even want to consider the “opportunity costs” of a private college education to both parents and children. Many savvy families are finding ways to spend less on education.
Prosperity Principle #4: Focus on Cash FLOW, Not Net Worth.
The Problem: Most financial planning focuses on future net worth, but does little to facilitate cash flow in the meantime.
The Principle: Dollars should be flowing both in and out of our investments and personal economy.
-Don’t put your money in qualified plans such as 401k’s and other retirement plans where the money is “locked up” for long periods of time.
-Choose investments where dollars can flow both in and out, or where the returns are realized in months or years, not decades.
-Don’t reinvest your dividends – use the money in other ways.
-Consider ways to generate multiple streams of income and increase your savings.
Prosperity Principle #5: Keep Your Money under your CONTROL
The Problem: We lose control of their assets when dollars are put under institutional or governmental control.
The Principle: We want to keep the decision-making power over our dollars whenever possible.
-lose your profits to management fees.
-Keep your money out of qualified plans such as 401k’s, 403b’s, traditional IRA’s, and 529 plans, except in cases where accepting an employer match may make sense.
-Don’t escalate mortgage payments to pay down extra principle. (We’ll look at this in more detail in a future post – it may seem counter-intuitive, but the calculators don’t lie!)
Prosperity Principle #6: MOVE Your Money Through, Not “To” Your Assets
The Problem: Money stagnates when it is “locked up” to accumulate and cannot move. Wealth-building slows.
The Principle: Just as consumer spending increases wealth as it circulates money through the national economy, likewise we want to circulate dollars through our personal economies. The movement of dollars increases the velocity of money.
-Move your money through whole life insurance, then utilize the policy to generate cash for other investments and purchases.
-Use investments such as bridge loans and investment real estate rather than qualified retirement plans where money cannot be moved and re-purposed.
Prosperity Principle #7: MULTIPLY Your Money by Getting it to Multi-Task
The Problem: Typical Financial Planning teaches us to compartmentalize our money into different accounts for different purposes – one for retirement, another for emergency funds, another still for education… but that approach in inflexible, unrealistic, and ultimately stunts the growth of our wealth.
The Principle: We can multiply the potential uses and jobs of each dollar. Furthermore, we can use literally “multiply” our dollars themselves through leverage or collateralization.
Treat your assets like a smartphone, using your dollars for multiple purposes.
Utilize the power of leverage, for instance, using life insurance or real estate as collateral.
SUMMARY: By looking at our dollars and our financial decisions through the lens of the 7 Principles of Prosperity, we can see how to maximize our dollars efficiently and effectively:
-increase our cash flow sooner rather than waiting for “retirement”
-increase our net worth steadily and safely, and• move ourselves towards financial independence.