The Seven Enemies of Wealth: Part II

The seven Enemies of Wealth-Part II

Welcome to the continuing series of Seven Enemies. Last time we had talked about a Budget and today we would talk about Cash-Flow. One area, where many people make some major mistakes that could be simply avoided by following the system below:

• The next step is to maintain three types of primary personal bank accounts.

1. Lifestyle Account: A bank checking account where we pay everyone else. You don’t need to tell the bank that this is your lifestyle account; it is for your reference and understanding.

What Goes In: Only the amount that you have arrived in your budget as a lifestyle account

What Goes Out: This is an account where you pay all your bills. It should not include your retirement plan contributions, IRA contributions, contribution towards your cash-value life insurance, investment accounts, or any type of savings or planning. If after the spending, there is money left at the end of the month, it can either be transferred to the Planning account, or you can go have some fun. The choice is yours.

1. Planning Account: This is a Bank checking or savings account from where all your planning takes place.

What Goes In: Pay Checks in Excess of what your lifestyle is or any money you receive more than what’s needed for your lifestyle. What Goes Out: All your future retirement planning, planning for family’s well-being in the event of your death, protecting your most important asset (income) through disability insurance, and protecting your health through additional health insurance like long-term care or critical illness policies. Planning without a written action plan and quarterly monitoring is meaningless. Also, it is meaningless without having an independent, honest, unbiased financial advisor by your side that represents your interest and not theirs. There shouldn’t be any money left in this account at the end of the month. The money should be invested to meet your three year goals and long-term goals.

1. Wage Account (Emergency Account): You need to title your emergency account as a Wage account as Wages of up to six months cannot be garnished from creditors (some exceptions). Also, the direct deposit of your wages for a period of three months (at a minimum) can go into this account.

What Goes In: Direct Deposit of your Paycheck or your net Paycheck.

What Goes Out: Only transfers to your Lifestyle and Planning account.

This is a great beginning for anyone reading this. To be continued….

Bye for now

Bimal