SPENDING MONEY

The consumer price index (CPI) measures the cost of buying goods and services for the average American. On a regular basis, 95,000 items from 22,000 stores are surveyed, and 35,000 rental-housing units are measured. The result concludes how average Americans spend their money. According to the Social Security Administration, the breakdown of spending looks like this…

Housing 41.4% Entertainment 4.4%

Apparel 6.0% Food & Beverage 17.4%

Transportation 17.0% Other 6.9%Medical

Care 6.9%

This looks fairly normal, but it should be noted that housing figures are based on rental property and do not take into consideration the huge inflationary aspects of owning a home. Also, these figures do not include the cost of energy. It should be pointed out that food and housing represent about 58% of the total amount being spent. The funny thing is that the CPI also ignores the fact that we all must pay taxes, and the cost of taxes is NOT included in the CPI. The cost of taxes eats up about 43% of our dollars. So, when the consumer price index is adjusted with taxes included, the average American’s spending now looks like this…

Government (Federal, State, & Local)

Taxes 44.0%

Housing 23.0%

Food & Beverage 10.0%

Apparel 3.0%

Transportation 10.0%

Medical 4.0%

Entertainment 2.0%

Other 4.0%

Note that when taxes are included in our spending, more is spent on taxes than on food, clothing, and housing combined by the average American. Because of taxes, the average person is limited in what they can spend on themselves. Unfortunately, this also dramatically reduces the ability to save money for the future (remember, most attempts to save will also be taxed). Having less money to spend on personal needs forces many average Americans into debt. The problem is, the government continues to outspend what the average consumer spends, creating an even greater percentage of your money going to the government in the future.

There are marketing companies, financial institutions and experts from the government who work 24/7 on new ways of separating YOU from your MONEY. Spending money is easy, but remember, it takes more money to “play” than it does to work. By understanding how your money flows out of your life via transfers, you can now focus on the problem you face, instead of chasing another quick-fix marketing scheme. You must understand that the solution is not difficult. It is based on logic and knowledge. It is time to take a stand against the money changers of the world.

Note that when taxes are included in our spending, more is spent on taxes than on food, clothing, and housing combined by the average American. Because of taxes, the average person is limited in what they can spend on themselves. Unfortunately, this also dramatically reduces the ability to save money for the future (remember, most attempts to save will also be taxed). Having less money to spend on personal needs forces many average Americans into debt. The problem is, the government continues to outspend what the average consumer spends, leading to an even greater percentage of your money going to the government in the future.

SAVING MONEY

Compared to spending money, saving money is much more difficult. Most of our time and attention is focused on spending our money. Very little is centered on saving. The last two generations of Americans have drifted away from taking some amount of their incomes and saving it. If you were paying attention, there was not a category in the Consumer Price Index (CPI) for savings. Savings in the United States have plummeted to an all-time low. This is amazing when you factor in that many households have two income earners. Still, over the past few years, consumers found it necessary to draw down their savings just to maintain their lifestyles and to make up for the declining buying power of their incomes. This is occurring at the same time when there are significant negative trends in company benefits and pensions, health insurance, social security and dramatic increases in government spending that will result in higher personal taxes. The Government Accountability Office (GAO) reported recently that personal savings were at a very low rate in our country. Spending and the costs needed to maintain an average family’s lifestyle robs people of any opportunity to personally save money. It is ironic that the government has secured its future through your income with no regard to your financial survival in your future. Any attempt with the government through taxes.

Saving is not just physically putting money somewhere and hoping it will grow. Saving can also be reducing the amount of money you spend, unknowingly and unnecessarily. Understanding this type of saving and recapturing transfers of your wealth will help you save the money you are simply giving away. This process, and the way in which you spend your money, is filled with opportunities for others (banks, credit-card companies, mortgage companies, the government, etc.) to make money FROM you, not FOR you. What they market as a savings for you is really a profit for them. The funny thing is none of these companies have money until you give it to them.

So, your personal savings can be a combination of two elements: the actual money you can save and the money you are unknowingly and unnecessarily giving away (fees, taxes, interest rates, etc.) in your everyday life.

CHOICE AND CHANCE

What many people do not understand is that there is difference between “savings” and “investments,” and in traditional thinking this can cause many problems. Savings is money that you have accumulated, and you want that money to grow in value but with very little, if not any, risk. This should be money that you have access to whenever you need it. With the continued onset of government programs such as Social Security, Medicare, and Medicaid, average Americans are lulled into a false sense of security that they do not have to save any money because these government programs provide a safety net for them in the future. The problem is that these programs are not free. The government continues to try to fix their social dream programs of the 1960s. These programs, if left unchanged, will bankrupt America. The American dependency on the government is now at a crossroad. Does the government do something now to save America financially? Does the government cut back on its spending and reduce government benefits by 60% or simply double the taxes we are currently paying and hope for the best? In a world that is filled with overwhelming challenges, everyone must re-learn how to save money.

The difference between savings and investments is the word RISK. I will give you an example. Many politicians do not want you to have control to invest some of your social security account into investments because it is A) too risky, or B) they think you are too dumb to do it. (Just a side note: The real reason they do not want you to be able to invest some of your social security payments is that they, the government, would then be accountable for your account, and they would not be able to spend this money for other things, which would mess up their lives.) The funny thing is that the government does not think it is too risky to put all your money into 401(k)s or IRAs and programs they created that involve investing. While contemplating investing, remember one thing: YOU ARE THE ONLY ONE AT RISK. The trade-off for “trying” or “hoping” for higher rates of return is the fact that you COULD possibly lose “a little,” “some,” or “a lot” of your money. For many reasons, social security has become their savings, and 401(k)s, IRAs, and other retirement plans have become supplements for retirement income.

As it is for savings, finding money from your income to set aside for investments is becoming more difficult. Accumulating money through investments has become the most popular way of attempting to increase one’s wealth, yet it remains the most misunderstood. Remember, it is far more important to understand how money works than what it is invested in. You should begin the practice of separating your savings from your investments.

NOW THAT I AM SAVING MONEY

If you have been fortunate enough to save money, now what do you do with it? Well, the goal may be to let it just ACCUMULATE. Everyone wants his or her money to grow. You could also FLATTEN your savings and investments. Flattening means that you keep the basis (what you originally invested or saved) intact and take only the money that you have earned from your accounts and take it as income every year. The goal of flattening is to keep the basis or principal of your accounts at the same level while drawing income from them. This would allow you to never run out of income-bearing money in the future.

You could also decide to SPEND DOWN an asset or your savings. Spending down an asset is withdrawing money from an account until the balance of the account is gone. As an example, if someone had $100,000 and wanted to SPEND DOWN that entire amount over a 10-year period, and while he was spending it down, he received a 5% rate of return on the balance that was still in the account, he would receive $12,333.17 per year for 10 years. At the end of 10 years, there would be no money left. If someone were to FLATTEN out this same $100,000 account with a 5% annual rate of return, this person would receive $4,761.90 per year and the account balance would remain at $100,000 at the end of each year. At retirement, you will make decisions on whether to let your money to ACCUMULATE or whether to FLATTEN out or SPEND DOWN what you have saved during your life.

So far, we have discussed how you spend your money and the difference between savings and investments. We have also looked at how your savings will be used. Whether you let your savings simply accumulate or use it for income by flattening out or spending down will be determined by you and the economic situation you are in. Your savings will create financial opportunities for you during your entire life, not just your retirement years. Learning to spend down or flatten out an asset could help you achieve goals that you may have now and in the future. By understanding these spending and saving concepts, you will start to see how your money works…for you.

SPENDING-SAVING

As a nation, we have become very good at spending money and pathetic at saving it. As a nation, the average American has developed some bad habits in the way we buy things and conduct our personal financial lives. The convenience of credit and the perceived nuisance of paying cash creates unnecessary fees and charges in our everyday lives. Not only do we pay for the goods on credit but also all the taxes charged for purchasing those goods. That is right, think of all the taxes that can be charged on a credit card. Everyone is constantly being brainwashed that the only way to purchase everything is by using credit. It is important to remember the definition of lost opportunity cost. When you spend a dollar, not only do you lose that dollar but also the ability to earn money from that dollar. When you purchase something, at least you have the goods or services you purchased. Lost opportunity cost also applies to transfers of your wealth. When you spend money for taxes, fees, charges, and interest, not only do you lose those dollars, but again the ability to earn money from those dollars. The problem is, when you pay for those transfers, you get no goods in exchange for your money. It is not uncommon for the average family to give away $500 or more PER MONTH.

It is possible that by examining how you spend, save and transfer or give away money that you can recapture dollars that are flowing out of your life today. To recapture these dollars, you are not exposed to market risk, taxes, fees or interest rates. You will be surprised that in recapturing these dollars you will not spend a single penny more than you are spending right now.

Other than the most obvious transfers of your wealth, such as income taxes, mortgage interest and credit card costs, I could probably rattle off another two hundred transfers that you are exposed to either directly or indirectly, in your everyday life. It is important to find an experienced trained professional to uncover and recapture the dollars that you have become accustomed to giving away. Recapturing these dollars will enable you to spend and save more of your money.

The average American is under the impression that in order to save money he must give up some of his worldly goods. After all, how much time would you want to spend in reducing your lifestyle to save for the future? Probably not much time at all. But, if you can save money by reducing and recapturing transfers and not spending any additional money, would you do it? This is the power of understanding how money works.

So, what can you do with your money? Well, you can spend it. Go ahead and have a good time and improve your life, but do not spend more than you make. You can save money. This is harder than spending it. Remember, there is a difference between “savings” and investments. Savings cannot only be real money you save but also money you do not give away (transfers). Once you save money, you can let accumulate, “flatten it out” or “spend it down” and use it for income or purchases.

Finally, we unfortunately, give away a lot of money through transfers of wealth in our everyday lives. Some of these transfers are controllable and can be recapturing these dollars can add up to a lot of money. Controlling this money will increase your ability to save money and improve your financial future. All of this can be accomplished without spending one more dime than you are already spending

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