The Hidden Riches inside of your Cash Flow

Most people only have two bank accounts they utilize in their lives.  Those two accounts are usually a checking and savings account.  Your paycheck gets deposited into your checking account, you then pay bills and if there is anything left the balance goes into a savings account.

According to www.tradingeconomics.com the national savings rate is 3%.  It will be bordering on impossible to accumulate any real wealth with such a pitiful savings rate.  Of course, there will be a handful of people who acquire wealth because they bought a certain company at a certain time and it went way up in value thus giving them a form of wealth.  Those will be few and far between the broke people who can never retire or even cut back on work to enjoy other things that life has to offer.

Let me give you a simple system to increase your savings and wealth.  First, you’re going to use more than just two bank accounts.  Most people dump all their money in their primary checking account up front and then give the money to everyone but themselves first and only keep the tip money if there is any money left.  Many people have even given up on saving money and don’t even have a savings account.  This is a huge mistake!

Stop that madness by immediately paying yourself 10% into your savings account the day you get paid.  Technology makes this so simple these days if you’ll use what is available to you right on your smartphone. Simply make sure your bank has an online app you can use on your phone. If they don’t, fire them and get a new bank. It’s just that simple.

Let’s assume you receive a $1,000 net paycheck as an employee every Friday. (More for self-employed or business owners below)   When you’re at lunch, on a break, or when you get home on Friday open up your banking app and immediately transfer $100.00 into your savings account.  Can’t afford that?  Bullshavic!  Everyone can afford it if it’s done first thing and up front.  It’s when you let your cash all go into one spot and spend first instead of transfer first you can’t afford it.  I have written articles on 50 ways to save $100.00 per month so you can absolutely afford it and many of you even more.

Now once you have done that successfully for 6 months open up another savings account for any special expenses you are saving for in the future.  College educations, a piece of needed equipment, dream vacation etc.   Also, make sure you hook your new savings account to that banking app!  Could you now save just 12% instead of 10%?  If not, consider starting a small business to qualify for many tax deductions that would give you the increase in “net pay” that you need.  Let’s assume you could save that additional 2% for our example.

Now keep putting away your 10% into your primary savings for the next 6 months.  In addition transfer 2% into your special account on payday every week!  This entire process won’t take you 45 seconds per week!  Let’s look at results after the first year.

Your every Friday transfer of just that $100.00 has given you $5,200 in your primary savings account and the truth is you didn’t even miss it from your life.  You extra special savings account that you started 6 months into this program has $520.00 in the account. So you’re approaching $6,000 in total savings from this simple plan.  Don’t spend any of it at this point.  Short of needing it to actually save yours or your family’s lives, the money stays put!

You’re now starting to create momentum in your financial life and it must be maintained.  Can you now even put in more?  Would you miss an extra 1 or 2% of your income?  Could you get to a 15% savings rate?  Let’s assume you could for this example and let’s go to the end of year 2 in the program. You’re still putting 10% inside of your main savings account so you would have $10,400 plus a little bit of interest but with today’s savings rate it will be peanuts.  But that special savings account will have an additional $2,600 plus the $520 from last year for a total of $3,120 in your special account.

So starting from scratch and using just a little knowledge, discipline, and simple technology you have approaching $14,000 in savings!  Now it might be time to fund an investment account of some kind.  We are partial to investment grade life insurance but there are many other options we don’t have time for today.  The main point is to divide your income and separate it the minute it comes into the door.  Try it and you’ll be amazed.

If you’re self-employed and get gross dollars paid to you without taxes getting taken out, open up an additional savings account (attached to your smartphone of course) and use it for nothing more than savings for future taxes.  Depending on your income, transfer over 20 to 25% of your gross income over to that savings account.  Because you’re a business owner (even if you’re not incorporated) you qualify for many business deductions that will affect your actual net tax rate.  So let’s say you gross $150,000 you will have put $30,000 into your future tax account at years end.  Is that enough to handle your taxes?  I bet that it’s more than enough.

Remember, you don’t pay taxes on your gross but on your net.  So if by using totally legal and ethical tax strategies and business deductions you get your gross income down to $70,000 adjusted gross you will owe self-employment tax of approximately 15% (but you get a credit of 50% of the self-employment tax on your income further reducing your actual net) But for easy example, let’s say you paid the feds $10,500 in self-employment tax (goes to your SSI, as well as Medicare and Medicaid).  That $70,000 goes over to your personal return, where you now deduct your standard deduction, mortgage interest, kids, and various other taxes paid to get to your taxable income.  Let’s assume your taxable income is $30,000 for a family of 4 putting you at between 0 and 15% of that taxable income owed in taxes.  Let’s take the worst example which would be 15% of that income due as tax.  That’s an additional $4,500 owed in tax to the IRS. (Won’t be that much but stick with me)  Now also assume you pay an additional $1,000 in state income taxes for a total of $5,500 in total income taxes owed.

This is combined with the self-employment tax amount due of $10,500 totals $16,000 of total liability to the government.  However, you saved $30,000 in your tax account leaving you with $14,000 to do with as you see fit! (Spend some of it and save some of it)  This separate tax account is critical for self-employed, commissioned salespeople, and business owners.  The last person you want chasing you down as a creditor is the IRS.  They have unbelievable power to make your life miserable and confiscate all you own.  Use this system and never worry again.

By taking control of your cash flow and segmenting the income into separate accounts you’re going to be way ahead in your financial life.  Start this week or you’ll never start at all!  If you decide to put some of your funds into an investment grade life insurance policy, contact us directly to help you set it up in the proper way and with the proper insurance carrier to give you maximum benefits.  Email us at colleen@wealthwithoutstocks.com