Hi everybody. Welcome to this edition of 5-Minute Finances. It’s Kyle Davis with Integrity Financial Group here in Orlando, Florida. Today we’re going to discuss 3 different kinds of money that play an integral part in your whole financial picture. We’ll discuss not only what they are, but how they interact with each other over time, as well. If we think of all of our wealth as being one large circle, we can divide it up into 3 different kinds of money.
The first kind of money is called accumulated money. These are the dollars that you have saved and are currently saving. This kind of money can be things like a savings account, an IRA, a 401(k), stocks, bonds, etc. Some kinds of accumulated money are liquid, while others are locked away until retirement. Some kinds can be accessed tax-free, others are fully taxable. Those things depend on a number of different factors that we’re not going to get into in this lesson, but we’ll explore more in-depth later.
The second kind of money is called lifestyle money. These are the dollars that you consume to maintain your current standard of living. Let me make it very clear, that does not mean lifestyle money is “luxury money”. You need lifestyle money to keep the roof over your head, to keep the lights turned on, to pay for transportation, food, education, etc. Obviously some lifestyle expenses are luxury items, such as dining out, entertainment, designer clothing, and the like. Lifestyle is often addressed first by financial advisors if a client needs to be saving more.
There is a third kind of money that’s rarely talked about, and it is called transferred money. These are the dollars that you may be transferring away unknowingly and unnecessarily. Some of the biggest areas of wealth transfer happen in things like mortgages, taxes, qualified plan funding (in other words, how are you funding a 401k or IRA?), college planning, and non-deductible debt expenses just to name a few. These are areas that you may be losing money…and not even know it. For example, if I told you that you’d have an extra $5,000 in your pocket TODAY if you had financed your last car differently, what would you say to that? If I told you that the way you are funding your 401(k) plan right now is creating a HUGE increasing tax liability for you down the road that you could have avoided, would you want to know about that?
If you can find money here in the transferred money portion and make simple changes, you can funnel it over to both of the portions so that your lifestyle is more enjoyable and your future is more solid.
If you have any questions about the different kinds of money or if you’d like to speak personally, call or visit us online at www.financialservicesamerica.com .