17 May WHERE DO YOU GET MONEY WHEN YOU NEED IT??
I’m not talking about $50 for a night out…or even a couple of hundred for a weekend. I’m talking about a few thousand (or tens of thousands) for a significant purchase…are you using the typical channels? Because you may not want to after reading this!
Perhaps it’s time for some renovations or you want to put that pool in the backyard. Maybe it’s paying for a vacation or other family expenses. Where do you go when you need a larger than usual amount of cash?
First, let’s look at what is typical, then what the big companies would like you to do, and finally what the Wealthy do.
Why what the Wealthy do? Well…start thinking and acting like the Wealthy and pretty soon, you’ll be one!
Typical sources of Money:
- Tax refunds – people get that big sum after taxes and typically spend it on big-ticket items. Well like the Wealthy Barber says…Pay Yourself First! So this is not a good long term sustainable strategy. A great use of your Tax refund is contributing to your TFSA!!
- Spending Savings – Some folks keep a Savings/Fun/Rainy Day account and if they can save enough in it, they spend it at the end of the year (or on emergencies when they arise). I don’t advise spending your Savings on Consumer goods (unless you’ve already maxed your Investments for the year and even then…there are better strategies we’ll cover in What the Wealthy Do section).
- Withdraw from RRSP’s – There is a scary trend these days where people are drawing their Savings from their RSP accounts to make big ticket purchases. Now in the right scenario, if you have hundreds of thousands in RSP’s PLUS other investment types and you need to draw down on this account to limit future tax disadvantages, I’m all for it! But the average person doing this is not in this scenario and is borrowing from the ONLY retirement savings they have now to buy ‘stuff’ and hurting their chances of successfully retiring in the future.
- Borrowing from Parents or Family – Again, not a horrible idea if your parents are well off and want to give you some ‘early inheritance’ to enjoy life while you are young. However, in too many cases the parents should not be giving away any of their nest egg and this should be Money that is used for some sort of investment, not luxury goods. It is still probably better than our next category…
What big companies would like you to do:
- Borrow, borrow, borrow on one of their cards, usually with some ‘interest free’ grace period. Well I’m here to burst the bubble once and for all – if it’s claiming NO INTEREST or NO MONEY DOWN…it’s not in your favour. Ask yourself…how can companies afford to sell you something WITH NO MONEY DOWN and not have to pay anything for 2 years? The company had to pay to get that item…so how can they do this? They can afford to do this because for years, they have been making this offer to people like you, who don’t pay the minimum or don’t clear the balance in the time given and then they pay HUGE interest charges going all the way back to when you first bought it! It’s a setup to take advantage of the fact that you didn’t have this large sum of money when you bought it and you probably won’t in 12 months or 18 or whatever term and you’ll have to pay big interest once the term expires.
- And it’s the same for all the letters in the mail about low interest credit cards when you move your balance over etc. They know most people will not pay the minimum, will forget, will not pay the balance in the time given etc. and they’ll charge you crazy interest that has been accumulating all along.
- These companies make MILLIONS of dollars from Consumers…especially on big ticket purchases…every year. Why do you think so many companies offer interest free grace period cards…it’s to suck you in!
What the Wealthy do:
- When the wealthy need Money, they take what they need, often tax minimized (whereas you pay the full amount of tax on your money) from their investments. This could be in the form of interest proceeds, dividends, cashing in an investment (at the best time for returns and taxes) or through Trust structures.
- The more interesting thing is what the Wealthy do BEFOREHAND to do this, and something I learned originally from the Rich Dad Series by Robert Kiyosaki: the Wealthy don’t buy consumer or luxury goods when they get a Refund or from their Savings…they AlWAYS purchase an Investment with that Money, grow it and use the proceeds to buy the things they want later.
This is not typical behaviour…let me share an example to make it more clear:
I sold a rental property a year ago. I could have taken that Money and bought all kinds of goodies (new car, vacation, new clothes…) but I didn’t. I re-invested it by purchasing shares in a company that invests in Real Estate projects. The shares make double digit returns every year that are not taxable until I sell them (just like buying a stock).
Recently, I needed cash for some Reno’s so I sold some shares and within a few business days I got a cheque that I can use at my discretion and I plan the taxes so there are no surprises at the end of the year.
The amount just happened to be the same amount that this cash generated by being invested…so I did not touch the original capital amount and it continues to generate additional returns.
- Invest Cash
- Re-invest proceeds from that Investment
- Use additional proceeds to buy what I need/want
This is what the Wealthy do to ensure they STAY wealthy for decades to come!
Which method do you choose when you need Money? Which category are you working from?
Are you limiting your future options, making company owners rich, or building your own Wealth for YOUR future?!?
Contact me here to start talking about what needs to change in your Money Mindset so you can join the ranks of the Wealthy too!