| Look at your own budget, or any others you | | | | other deductions of $100, when you earn |
| can find. They are based on management of pay | | | | $1,000 your paycheck stub will show: |
| and assets-- apparently logical, but in | | | | |
| reality misleading and costly. How does it | | | | Earnings: $1,000 |
| make sense to manage assets before you create | | | | |
| them? But pigs will fly when the industry | | | | Income tax: $250 |
| discloses procedures that put money in your | | | | |
| pocket, instead of providing info and advice | | | | Other deductions $100 |
| based on marketing hype that puts profits in | | | | |
| theirs. | | | | Paycheck: $650 |
| | | | |
| You may have to think about this, because | | | | Call this an income stream and go a step |
| it's contrary to your present ideas about | | | | further. All deductions other than income tax |
| managing money. | | | | are really part of your budget, withheld as a |
| | | | requirement or convenience by your employer. |
| You've heard homilies like... "save 10% of | | | | So your main income stream is: |
| your income... maximize your contribution to | | | | |
| ira (US) or rrsp (Canada)... pay off high | | | | Earnings: $1,000 >> less $250 tax |
| interest rate or biggest debts first... make | | | | >> $750 to budget. |
| room in your budget for regular investing... | | | | |
| etc." It's the only kind of information we've | | | | What does this have to do with the cost of a |
| had and it's the basis of ideas about how you | | | | widget? The price of your widget is what the |
| should manage your finances. Unfortunately, | | | | vendor gets-- $100. But its cost is the |
| it's based on marketing hype. They want you | | | | amount you had to earn to have $100 to pay |
| to use their products-- loans, savings | | | | for the widget, and the time you put in |
| accounts, ira or rrsp, mutual funds, etc. in | | | | earning it! |
| your daily financial management. | | | | |
| | | | As for tax, the next dollar you earn will be |
| We need information about procedures, not | | | | taxed at your top tax rate, as will income |
| products, but don't expect it from your | | | | used for the next dollar you spend. Check |
| favorite financial planner or advisor. Proper | | | | your tax return to see the tax bracket you're |
| use of their products can make a dramatic | | | | in. Your top tax rate is the rate in that |
| change in your finances, but it reduces their | | | | bracket and it's always your "effective" tax |
| profits! | | | | rate. For the average person it's about 40%. |
| | | | |
| "Financial planning" is information for | | | | At an effective tax rate of 40%, the cost of |
| managing wealth, and it simply can't work for | | | | your $100 widget is |
| creating it-- your wealth originates from | | | | |
| everyday financial activities. Basing | | | | $167 income >> less $67 income tax |
| decisions on 'financial planning' concepts is | | | | >> $100 for widget. |
| the reason for most personal and family | | | | |
| financial problems. Worse, government | | | | If earnings average $20/hr, the widget costs |
| statistics show very low probability of | | | | over 3 hours at work! |
| financial success at retirement; odds that | | | | |
| have not improved since records have been | | | | Now we can attack the problem. If you have to |
| kept in spite of higher incomes, better | | | | earn $1.67 to pay for a $1.00 item, your "tax |
| education, pensions and government safety | | | | factor" is 1.67. Multiply the amount involved |
| nets, plus the combined advice of hundreds of | | | | in your next financial decision by your tax |
| thousands of financial planners and advisors. | | | | factor to see the income streams involved. |
| | | | You should do this with every financial |
| The reason: financial planning is based on | | | | decision. |
| budgeting your pay. This means you ignore | | | | |
| your earnings. It's the only time in all | | | | First, use it first to tighten up your |
| financial accounting that ignoring income is | | | | "shopping attitude". For example when you |
| a "generally accepted" procedure. | | | | know the time you'll have to put in at work |
| | | | to buy your widget, you'll think about |
| The result is financial problems-- some you | | | | whether you really want it. If you still do, |
| don't even know you have! Replacing your | | | | buy it-- that's what your money is for. But |
| present concepts with new Wealth Creation | | | | if you don't buy it, at least for now, you'll |
| financial management can put hundreds of | | | | have more money for things you really want. |
| extra dollars a month in your pocket, tax | | | | Do this with every expense, even that extra |
| free. And that's only the start! People like | | | | cup of coffee. The little ones really add up! |
| you are making remarkable changes in their | | | | |
| financial lives by changing their ideas about | | | | Reducing impulse buying is not penny |
| personal financial management. | | | | pinching; in business it's called common |
| | | | sense. Everyone is an impulse buyer to some |
| To set the stage, imagine there is no income | | | | extent: your new shopping attitude should |
| tax. You are paid what you earn, so if you | | | | increase savings ability (sa) by $100 to $500 |
| earn $1,000 that's the amount of your pay | | | | a month or more. Tax free! |
| check. If you want a widget that costs $100, | | | | |
| there's no income tax, so $100 is what you | | | | This is the initial step in Wealth Creation. |
| earn to pay for it. | | | | In future articles we'll maximize savings |
| | | | ability to about 1/3 your income, after that |
| Dream over! What you earn is not what you're | | | | we'll use the tax factor for profitable |
| paid, because income tax is either deducted | | | | financial planning (real financial planning), |
| from pay, or you set aside money to pay it. | | | | and then we'll start converting resulting |
| If your overall tax rate is 25% and you have | | | | savings to wealth! |