Organize Financial Life –
Part 1

Adrian B Early, Ph.D., MBA, CFP®
Chief Investment Officer, shareGRO™ Practice

If you would be wealthy, think of saving as well as getting.

– Ben Franklin

Money is a guarantee that we may have what we want in the future. Though we need nothing at the moment it insures the possibility of satisfying a new desire when it arises.

– Aristotle 

Finance serves two primary purposes, growing wealth, and protecting or guarding it. This part 1 is about building wealth and organizing that process. Part 2 deals with protecting wealth, especially once built. Finances would be vastly simpler if not for taxes, so let us first outline what would be done if we ignored tax considerations. Then we will add needed account types, etc. dictated by achieving tax savings. The needs for wealth are to solve goals in life, short-term, mid-term, and long-term in duration. Example “buckets” of resource needs are for emergency funds (3 to 6 months of expenses traditionally, more now due to income uncertainty), financial goals like college, starting a business, travel, other purchases, and long-term for retirement or personal mission needing full expense coverage. When passive investment returns can be tapped to fully cover expenses, you are, by definition, financially free.

Finances would be vastly simpler if not for taxes, so let us first outline what would be done if we ignored tax considerations. Then we will add needed account types, etc. dictated by achieving tax savings. The needs for wealth are to solve goals in life, short-term, mid-term, and long-term in duration. Example “buckets” of resource needs are for emergency funds (3 to 6 months of expenses traditionally, more now due to income uncertainty), financial goals like college, starting a business, travel, other purchases, and long-term for retirement or personal mission needing full expense coverage. When passive investment returns can be tapped to fully cover expenses, you are, by definition, financially free.

So, organizing financial life to grow wealth is starting and growing investment and saving accounts to address the needs, keeping track and growing one or more investment accounts to address those needs. Goals can be lump sum in nature, or for ongoing cash flow. Stock market long term returns substantially exceed 5% normally, so this is often (check your situation) a reasonable percent of an investment account to draw for ongoing needs, yet continue account growth. Community sharing can help grow initial amounts faster through cash flows to the account, compounded with investment returns.

Build accounts, keep track of progress on meeting your goals and actually address those goals. Doing so, you will be building wealth, approaching financial freedom, and managing when you will reach that. Below is a framework of account types to reduce taxes, that may be important as you grow wealth.

 PurposeTypeSecurity Types
1.Emergency Fund Cash or equivalent Bank accounts, Money Funds, Bonds
2.Investment with accessTaxable Roth IRA (Cost basis can be accessed penalty free) Stocks, Bonds, etc.
3.Retirement Account(sRoth / Traditional IRA, 401 K, other retirement accountsRoth IRA is extremely flexible and powerful
4.Health Savings Accounts (HSA)These require a high deductible Health Insurance Policy but are tax deferred, and may double for retirement (like IRA) to the extent not spent on health costs
5.Educational Accounts Roth IRA Own / other (kids, grandkids) education

May strategizing and winning the game of finance bring you joy in life and financial freedom.

[i] See more info at www.shareGRO.com

© 2017 shareGRO™ Practice

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