Accumulated Money, Transferred Money, and Lifestyle Money
When you put together “the Plan,” what does that mean? Does it mean selling some Investors Group Allegro(TM) aggressive portfolio or some other Investors Group US Large cap Value fund?
Very little talk is about cash flow and how to work with current payments and move them into accumulated money. The talk is about saving more and spending less and generally taking on more risk to reach your goals!
The latest downturn shows that taking on more risk does not work! Being a “budget bulldog” helps, but it does does not address money that is lost by being transferred unknowingly or unnecessarily.
No, “the Plan” means looking at the three money areas that everyone has to consider: Lifestyle money (what you spend on your self and your family, like trips etc.) Transferred money and Accumulated money.
1) Accumulated money (e.g. RRSPs/RESPs). This represents the amount of money you currently have invested and are currently saving. How would you say you are doing in accumulating the dollars necessary to meet your future retirement needs and goals? On a scale of one to ten, where are you? Any answer less than ten would mean that perhaps you should be putting more money away.
2) Lifestyle money. One reason that keeps people from saving is Lifestyle. Lifestyle money represents the dollars that you are spending to maintain your current standard of living – where you live, eat, vacation etc. How much energy would you like to spend towards reducing your present standard of living so that you can save more? We know we need to save more and want to do so, but the only way we know to get the money is from our lifestyle, which is out of the question.
3) Transferred money. This brings us to the third type of money, which is Transferred money and is a problem for some. Transferred money represents the money you may be transferring away unknowingly and unnecessarily. Obviously if you knew where the transfers were taking place you would have already solved those problems. A few possible areas where you may have some money, like mortgages and term life insurance, are examples of money which can be recaptured. I feel it is important to begin focusing on money you may be transferring unnecessarily because this most often has the biggest impact on your Circle of Wealth over time. The interesting thing is that by avoiding unnecessary transfers, dollars are then freed up to put towards accumulation or lifestyle with no additional out of pocket cost.