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Key to Wealth PDF Print E-mail
Written by John D. Buerger, CFP®   
Monday, 04 October 2010 09:37
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John Buerger

"Keep your eye on the ball!" - Coach Charlie Wright

Anyone who has ever played a sport has heard this phrase. It is the key to hitting or kicking the ball harder, farther and with greater accuracy. Of course there is a big difference between knowing what you should do and doing it. There are lots of distractions that help most sport enthusiasts (and even professionals) take their eye OFF the ball. That's when the trouble usually begins.

Building wealth is a lot like being better in sports​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​. ​​What is the one, single-most important key to building wealth?

CASH FLOW

The fastest, simplest and most productive way to build wealth is through control over your cash flow.

Yes, investing is important and so is protecting the wealth you already have (usually through insurance), but by far the most powerful tool you have (and you have complete control over this tool unlike most financial instruments) is cash flow.

Isn't it odd that the multi-trillion dollar financial services industry - an industry that is always touting their success at helping folks create wealth - spends almost NO TIME or resources on cash flow management. As much as we have seen huge "advances" in financial tools like mortgages, investments and insurance products, most people are still using the same cash flow management techniques (budgets) that our great grandparents used.

That is so 19th century.

NO BUDGET

Budgets don't work.

For most of us, budgets are ineffective. They are restrictive in nature (people only "CUT" expenses ​​​​​​​​​​​​from their budget) but h​​​​​uman nature puts more value ​​​​​​​​​​on what is being sacrificed in the present than on what could be ​​​​​​​​gained in the future​​​​​​​​​​​​​​ through saving.​ Why? Because spending money feels good.

"Budget" is a four-letter-word (with six letters).

CASH FLOW MANAGEMENT

In order for you to stick with it, your cash flow management technique should be empowering, positive and even fun. What you need are tools that have more positive factors than negative - tools that are in alignment with the innate human desire to possess things and enjoy the thrill of spending (the pleasure that comes from buying those possessions).

Those tools ARE available to you, just not through normal financial advisory outlets - those folks are too busy selling their new fangled insurance or investment products. While you will spend some money getting and learning a useful cash flow management system, the cost pales in comparison to the money you pay financial salespeople (directly or indirectly) for their products (that don't usually work). If your cash flow system is effective, you should have at least three times the cost of implementation in additional savings in the first year alone.

A 300% rate of return beats anything your stock broker can promise you.

START NOW

Working on your cash flow is something you can and should start to do right away. There are no minimums with cash flow management. If you have money slipping through your fingers right now - and if you have any type of income, even unemployment income, this is the case -​​​​​​​​​​​​​​​​​​​ you can start working to improve your cash flow RIGHT NOW​.

The earlier you get started on saving, the better off you will be.

If you were lucky enough to start saving $5000 per year starting at age 20, by the time you were 60 years old you would have built up $1.25 million (8% growth each year) even though you would only have "saved" $200,000 over that 40 year period.

If you had STOPPED saving money after the first 10 years (but continued to allow the account to grow at 8%), you would still wind up with $728,867 by the time you were 60 even though you had only saved $50,000 ($5000 per year X 10 years = $50,000). ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​If your neighbor STARTED saving at age 30 (the same age you stopped saving), he would only have $566,416 in the account at age 60 even though he had "saved" three times as much money ($5000 per year X 30 years = $150,000).

FEELS BETTER THAN SPENDING MONEY

$5000 may seem like a lot of money but it is just 10% of the average household income in America. I have gone through this cash flow exercise with dozens of people from all walks of life. It's pretty easy to find 4% in savings a year right away. Once you have had success at these savings rates for a few months, the jump to 10% is not that difficult. In fact, most people are anxious to make it happen.

Why? - It feels good to have control over your money.

It is not the same endorphen and dopamine laced high that comes with the thrill of spending. Being confident and in control works off a completely different part of your brain's circuitry. The high lasts much longer and generally helps you make better decisions on other financial matters, too.

HOW TO GET STARTED

There are plenty of books you can read. The Wealthy Barber is one of my favorites. I also like David Bach's Automatic Millionaire (see our bookshelf for more ideas).

Our own proprietary Cash Flow Hydrant™ system helps you identify the expenses over which you DO have control versus those that you can't change. It also aligns your spending with the things that are most important to you so you will end up with more of what really matters in life and less of what doesn't.

You gain access to this system through our Wealth Health Check-Up (which comes with it's own money-back guarantee).

Once you accept this reality and work with it - you will get control over your money before it takes control of your life.

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Last Updated on Monday, 04 October 2010 19:20