TRANSFERS OF WEALTH

Is it possible many of the answers for a successful financial life may be right in front of you and you simply can’t see them?  Many people give away most of their wealth unknowingly and unnecessarily.  These are called transfers of your wealth.  The discussion we are about to have will help you discover the transfers of wealth in your life.  Once you recognize your transfers, you will have an opportunity to recapture this money that you are currently giving away.  You will discover how traditional investments may have unintended consequences in the future.

DEFINING TRANSFER LABELS

It is one thing to be held up and robbed by someone wearing a mask and carrying a gun; it is another to willingly give away your money freely, but the result of either one in your personal financial life is the same.  Just as you can identify a thief by his mask and gun, you must learn to identify the transfers in your life that also take money from you.  Many people have not been trained to recognize these transfers.  Quite the opposite, people have been trained and brainwashed to accept that these transfers are just a part of life.  Some transfers in your life are inescapable, but many people create transfers in their life by the decisions they make or do not make.  Bad judgment, bad investments, bad timing, indecisiveness and sometimes doing nothing – all of these can create transfers and a loss of wealth to you.  You must remember your economic situation is a matter of choice, not a matter of chance.  The problem is that many of life’s decisions can create unintentional consequences in your future.  A transfer of your money is nothing more than profit for someone else.  Now pay attention.  The government sees you as a taxpayer.  The bank sees you as a borrower and interest payer.  Investment companies see you as a fee payer, nothing more, nothing less.  These groups are not going to do you any favors.  They are not your friends, and in most cases in dealing with them, you are the only one at risk.  Here are transfer labels, and what they are called, that are active your everyday life.

RECOGNIZING TRANSFERS

TAXES:  Taxes occur dozens of times a day in your daily life.  There are federal, state, and local income taxes; sales taxes; telephone taxes; cell-phone taxes; water and sewer taxes; gas taxes; business taxes; cable-TV taxes; capital gains taxes; service taxes, and utility taxes.  The list of taxes you pay goes on and on.  Some of these taxes are unavoidable and impact everyone, whether you are still working or retired.  Taxes impact your lifestyle, accumulated, and transferred money.

INTEREST RATES:  Debt in America is at an all-time high.  The interest on this debt is a great concern.  The interest rate on much of this debt is flexible, meaning it can go up.  Interest is paid on mortgages, equity lines of credit, credit cards, auto loans, leases, college loans and various other purchases.  Interest rate payments come from your lifestyle money, after taxes.  Paying too much money on interest could impact your ability to deposit more money into savings and accumulated money.

BANK FEES: There are hundreds of fees that a bank can charge you.  Once again, bank fees are transfers that come from your lifestyle money:  check fees, check-cashing fees, ATM fees, saving account fees, late fees, early-withdrawal fees, etc.  Why not just put on a mask, get a gun, and rob us while we are standing in line waiting for all that free service they proclaim to give us.

MAINTENANCE FEES:  You gave them your money, and then they want to charge you a fee for giving it to them.  These fees once again are typically paid out of your lifestyle money.  Many times, a maintenance fee is simply subtracted from the money you gave them.  It is not enough that they use your money to make tons of money for themselves; they charge you a fee.  Using your money must be some kind of nuisance to them.

MANAGEMENT FEES:  Once again, these types of transfers are hidden from you by simply subtracting them from your accounts.  Management fees guarantee the company of getting paid first, whether you gain money in their accounts, or they lose it all for you.  Management fees are a transfer of wealth from your lifestyle and cumulated types of money.

FINANCE CHARGES:  It is not enough that companies that lend you money charge you interest on the loans; they want to charge you finance charges for processing the transfers, once again impact our lifestyle money.

L.O.C. (Lost Opportunity Cost):  If you pay a fee, a charge, an interest rate or finance charge to some companies, not only do you lose the dollar you gave them, but also the ability to earn money from the money you just gave them.  This compounds your financial troubles.

TRANSFERS CONTAINED IN PRODUCTS

Almost everything we attempt to do to help our financial situation results in some form of transfer.  Following the financial advice of some experts, many times they gloss over or omit some of the transfers that you will have to face when purchasing financial products.  I am not telling you not to buy financial products but rather to be aware of not only the positive aspects of your investment but also some of the transfers in your life can and will occur from them.  First, find competent professional help from someone who is versed in all aspects of products AND transfers.  There are many ways to invest your money, but included in these investments are possible transfers that are hidden within them.

CD AND BANK SAVINGS ACCOUNTS:  Banks and credit unions offer a variety of ways to save money.  These typically are savings accounts and certificates of deposit.  Some savings accounts will have fees attached to them if your account falls below a minimum amount.  Another transfer from these savings accounts is that you must pay taxes on any gains or growth in these accounts.  The Certificate of Deposit (CD) is usually associated with holding your money for a period of time, like six-month, one-year, three-year and five-year CDS.  If you withdraw money prematurely from these accounts, the bank will penalize you.  You also must pay tax on any gains you have in these accounts.  These bank accounts typically have lower rates of return attached to them.  TRANSFERS INVOLVED:  FEES, EARLY-WITHDRAWAL FEES AND TAXES.

MUTUAL FUNDS:  Putting money into mutual funds is common these days.  They offer a variety of investment choices from aggressive to conservative, and each fund is diversified with a number of different companies or investments within itself.  In many mutual funds, there are managers to run the fund, so they get paid.  There also may be a front-end charge that you pay to buy the fund and an early-surrender fee.  Inside the fund, there could be maintenance fees, and you will pay taxes on any gains that may come your way from the fund.  Add to this that it is possible that you could lose money if the market goes down.  TRANSFERS INVOLVED:  MANAGEMENT FEES, POSSIBLE MAINTENANCE FREES, POSSIBLE FRONT-END LOAD FEES, POSSIBLE BACK-END FEES, TAXES AND THE RISK OF LOSS FROM THE MARKET.

REAL ESTATE:  Real estate covers a wide range of investment possibilities.  From buying your own home, rental property, commercial property, purchasing land or the now popular “flipping” of property, you better know what you are doing in this game.  When it comes to property, you can be smothered in transfers.  Mortgage fees, closing costs, mortgage interest, down-payment costs, insurances, property taxes and many more costs can financially suffocate you.  There is also the possibility that the value of the property could go down.  Where you live and the property you buy can consume a large portion of your wealth.  TRANSFERS INVOLVED:  MORTGAGE FEES, PROPERTY TAXES, INSURANCE PREMIUMS, CLOSING COSTS, DOWN PAYMENTS, MORTGAGE-INTEREST RATES AND RISK OF VALUE GOING DOWN.

STOCKS:  Like mutual funds, purchasing stocks has become second nature to many people.  I believe it is important to save and invest your money.  Financial gains are needed for your future security.  You know there is an element of risk when purchasing stocks.  The company’s marketing the stocks make it sound simple, and everyone can play.  You may quickly discover there is a price to pay to play.  TRANSFERS INVOLVED: BROKERAGE FEES, MAINTENANCE FEES, TRADE FEES, MANAGEMENT FEES, THE DREADED TAXES ON GAINS ANAD THE POSSIBILTY OF LOSING MONEY DUE TO DOWN MARKETS.

ANNUITIES:  For some time, mostly for the older generation, annuities offered some form of safety.  There are fixed, variable and index annuities.  They offer a variety of results, some good, some not so good.  The values inside an annuity grow tax-deferred, but at some point, the gains will be taxed either when you use the money or when you die.  Annuities can carry some baggage.  Exit fees can last very long and be very expensive.  TRANSFERS INVOLVED:  POSSIBLE LARGE EARLY-WITHDRAWAL FEES, SURRENDER CHARGES AND TAXES ON ANY GAINS WHEN YOU WITHDRAW MONEY OR ON ANY GAINS WHEN YOU DIE.

These are the types of products that you may have in your life right now or possibly in the near future.  In no way am I saying you should not own any of these products.  I believe you need as many financial tools as you can get.  Learning how these tools work and how and when to use them is more important than owning a tool.  Example, what good is a wrench to a dressmaker?

REVIEW

To summarize, let’s review the thought process we have established in understanding how money works in your life.  

There are only three types of money in your life:

Lifestyle Money

Accumulated Money

Transferred Money

Many of the things that we rely on to secure our financial lives have these transfers:

Bank Savings Accounts

CDs

Mutual Funds

Real Estate

Stocks

Annuities

Many of the financial products we buy have transfers we discussed attached to them:

Taxes

Interest Rates

Finance Charges

Management Fees

Bank Fees

Maintenance Fees

Lost Opportunity Costs

The transfers in your life can amount to a lot of money.  Recapturing these transfers by reducing or eliminating them would allow you to keep more of your money.  This could result in more options and opportunities in your life.  Let’s examine the 10 most common transfers in people’s lives.

“You can be young without money, but you can’t be old without money.”  – Tennessee Williams

“My people are destroyed for lack of knowledge.”  – Hosea 4:6

This educational material is provided by the Wealth & Wisdom Institute.