Four Challenges to Building Wealth: Rules of Financial Institutions
In continuing our exploration of the four challenges to building wealth, we’re looking into the rules of financial institutions today. We’ve written at length before about how financial institutions operate to get and keep more of your money. Take the time to educate yourself on these behaviors and how they get hold of your money and keep your finances operating in their ecosystem. These are definite hurdles for your wealth, but these principles can be adapted so you can grow your own personal finance.
Treat Your Finance Like a Bank
One way you can apply the rules of financial institutions to your own wealth growth is to remove some of the “personal” from your thinking about personal finance. Think of your funds as though you are a bank:
You want your money
- Banks want you in their ecosystem. They want you to keep your funds with them, as much as possible. Work to hold onto your money with the same dogged determination. Eliminate high-interest debts and reduce what bills you can.
You want your money systematically
- Sure, automatic deposits are convenient and secure, but that systematic deposit is more fuel for the bank to use while they hold your funds. Use these systems to your advantage, but keep track of your automatic payments and deposits. Cancel those you don’t use and keep your money systematically storing away for the future.
You want to hold your cash for a long time
- Your balance year-over-year should be a gradual march upwards. Holding onto your funds and committing to the security of that growth will provide your life the security and abundance you deserve.
You want to give as little away as possible.
- You never know when you’re going to need your emergency fund. You never know when the opportunity to invest in your dreams will arrive. Keep your funds around for when lighting strikes- good or bad.
Know All of the Details
Do you know your accounts’ rate of return? What about the annual percentage rate? Do you know if your mortgage or other loans have a prepayment penalty? Banks and other financial institutions don’t enter into a financial agreement or partnership without knowing every detail, and neither should you.
The details you don’t know can be what leads to financial disaster. Take the time to read, know, and clarify the details that the banks love to hide in the small print – it can be eye-opening.
Make Your Money Do Multiple Things at a Time
Sticking all of your savings in one account doesn’t make sense. In today’s uncertain world, you need to use a diversified strategy to make your money work harder for you. Other methods of saving your money include:
- An Emergency Fund: This should be kept separate from your main checking and savings account. Keep the funds hard to access to prevent impulsive use and take advantage of automatic transfers to keep it juiced up. Most experts recommend that you have 3-6 minimum of living expenses in your emergency fund.
- Investment Accounts: Exchange traded funds and mutual funds are ways to invest your money in shares of companies’ stock. You’re buying a piece of their business, in the hopes that the performance improves and more value is generated for your account over time.
- Retirement Accounts: 401Ks, the now-rare pension, and IRAs are types of deferred-income retirement accounts. Different types have different tax-incentives, and each offer crucial ways to build your nest egg for eventual retirement.
If you can find ways to accomplish more than one thing with a dollar, you’re hitting the big leagues alongside those institutions that are too big to fail. Spreading your investments out amongst these different accounts helps shield you from market volatility that can eat your returns, as well as providing vehicles to achieve different goals with your money.
Don’t Accept the Status Quo
The real secret to making your personal finance work as hard for you as the banks’ treasury does? Arm yourself with ambition and an abundance mindset. Know that there is always another option to explore that can benefit you in different ways. Don’t accept the current situation or enter into lopsided agreements that offer no benefit to you. If you are not growing or improving in your current financial situation, or career, or hobby, or workout routine why stay there? The world is full of alternatives worth exploring until you find something that works best for you.
Ready to conquer the traditionally lopsided relationships between individuals and institutions? Learn more about personal finance with us at JB Wealthfit.