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The 3 Places Your Money Can Go – 2 Build Wealth, 1 Does NOT

 

Cut your spending by $6,000 without giving up the fun and without a complicated budget.

Break the paycheck-to-paycheck cycle, find the money to pay back your loans and finally build your savings.

by Rob Bertman, CFA, CFP® in Uncategorized
July 12, 2016

Summary

Today’s question: “Rob, what should I do with my money?”.  I have a really simple answer to this complicated question.

Your money can only go to 3 places:

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1. Increase what you OWN: We can save it.

We can put money into a checking or savings account. We can invest it in a retirement account. We can buy something of value. Our money can be put into things that build up what we own.

2. Decrease what you OWE: We can pay back debt.

We can pay back our student loans, credit card debt, mortgage, or auto loans.  Our money can be used to pay back the people or companies we owe money to.

IMPORTANT: Both of these 2 places increase our wealth!

Building savings or paying back debt with money from our salary, a bonus, or our business makes us wealthier.

3. Spending: Does NOT increase our wealth so MAKE IT COUNT!

Every dollar we spend is a dollar that does NOT go to building our wealth. It’s a dollar that does NOT go to getting us closer to financial independence or financial freedom. It’s a dollar that does NOT go to reaching our financial goals.

How do we make our spending count?

  • Spend to significantly increase life enjoyment or fulfillment.
  • Spend to meaningfully reduce stress.
  • Spend to increase income.

      Anything else is WASTING MONEY

RECAP – 3 Places Money Can Go:

  1. Build what you OWN (Increases wealth)
  2. Pay back what you OWE (Increases wealth)
  3. SPEND (Remember that every dollar spent is a dollar that does NOT increase our wealth and does NOT make progress toward our financial goals.

Don’t waste it. Make it count!

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Transcript

Hi there. I’m Rob Bertman Founder of Money With Impact and this is 5 Minute Financial Fitness where we get your money in shape in 5 minutes by giving you a great tool, tactic or strategy that you can use to help improve your financial situation.  We do it in a way that you can understand and we do it in 5 minutes.

So today I want to talk about a question that I get actually quite often. It’s, “Rob, what do I do with my money?”

It’s a very vague broad question, but really what people mean is ,”Should I save it? Should I invest it? Should I pay back debt? Should I spend it? Where should I spend it? What should I do with my money?”

Let me simplify it for you, because your money can only go to 3 places.

Now you may be thinking, “Rob, there’s many more than 3 places my money can go!” so let me break it down.

The 3 places your money can go:

First place: It can go to increase what you own. Now this is called savings. We can save it in a checking or savings account. We can invest in a retirement account. We can buy something of value with money that comes in. That’s one place your money can go.

The second place your money can go is to decrease what you owe. You can pay back your student debt, credit card debt, mortgage, and any other money owed.

IMPORTANT: When we take our money that comes in from our salary, from our job, from our business, from a bonus and use it to increase what we own (increasing our savings) or to pay back debt (decrease what we owe), both of those increase our wealth.

Wealth is when we add up everything we own and subtract everything that we owe. So we add up our savings accounts, our retirement accounts, investment accounts, house, car, whatever, and we subtract all the debt that we owe from student loans, credit cards if we have it, auto loans, mortgage.  What’s left over is our wealth.

So when we build up our savings or pay back our debt, both of those things increase our wealth.

The third place your money can go is spending.  Now spending does absolutely nothing to increase wealth, so we have to make it count. Every dollar that we spend is a dollar that does NOT go to building our wealth. It’s a dollar that does NOT go to getting us closer to financial independence or financial freedom. It’s a dollar that does NOT go to reaching our financial goals.  Every dollar we spend does none of those things, so we have to make it count.

How do we make our spending count?

Well the way I look at it is unless the money I’m spending is significantly increasing my life enjoyment or fulfillment, unless it’s a necessity, or unless it’s doing something to significantly reduce my stress (I’m not talking in the short run – instant gratification like I’ve had a stressful day and I need to spend money on something in order to feel better.)  I’m talking about something looking back that if I were to look back 30 days from now, would I smile or feel relieve when I spent money there?  When I smile that means I really did enjoy it in retrospect. And if I feel relieved, I feel good about what I did to reduce my stress in retrospect too.

Now another thing you can do with spending to make it really count is if you have a business on the side, or you have something that you want to spend money on that will help you increase your income, like a side business or starting your own business, then that may also be money well spent.

But for me, if I’m spending money and it doesn’t go towards feeding my basic needs, if it doesn’t go towards increasing my life satisfaction or fulfillment or enjoyment, or if it doesn’t go to reducing my stress by taking care of my body or my mind in a way that’s meaningful, and if it doesn’t go to increase my income, well then I’m just wasting money. And every dollar that I’m wasting is a dollar that does not go to build my wealth and get me closer to financial independence and to reach my financial goals.

So the three places our money can go again is to increase what you own (build your savings), decrease what you owe (pay back debt), or to spend it.  Remember that every dollar that we spend, is a dollar that does not go to a lot of things, so make it count.

Thanks for joining me this week on 5 Minute Financial Fitness. If you’re listening to me on the podcast, go ahead and subscribe to 5 Minute Financial Fitness podcast. You can do it through iTunes. You can do it through Stitcher.  You can do it on your Android phone, and subscribe.

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Thanks again. I really appreciate all of you who have taken the time, all of you who are subscribing to the podcast and leaving the reviews, all of you who have signed up to get priority access to these blog posts.

I can’t wait to talk to you next week. We’re going to cover another great subject so look out for that.

Thank you!

Rob Bertman, CFA, CFP®
Founder & CEO
Money With Impact
www.moneywithimpact.com

Want to learn more about this topic? Sign up for the FREE webinar with Q&A session here.

 

Cut your spending by $6,000 without giving up the fun and without a complicated budget.

Break the paycheck-to-paycheck cycle, find the money to pay back your loans and finally build your savings.