Many people have preconceived notions of who a financial advisor is and what they do, and for good reason. I’d hazard a guess that if you have previously consulted a financial advisor or planner they talked about how much money you have, where you have it stored, and how they can do a better job. It seems as though many investment firms believe in trying to find better products that earn a higher rate of return.
Regardless of the high-tech analytic or mathematical software that are available to those in my profession, none of us have the ability to see into the future. Earning higher returns is great, and I can help you with that, of course. But, the most important thing I can help with is ensuring that you’re not losing money unnecessarily. Return is not the end-all-be-all when evaluating the efficiency or effectiveness of your economic model.
The Three Types of Money
There are three types of money available to you: Accumulated Money, Lifestyle Money, and Transferred Money. The money you’ll be using to build your financial future has to come from one of these three areas.
- Accumulated Money is the dollars you have invested and are saving. Pivoting your attention to this type of money allows you to find better investments that could pay higher rates of return.
- The money you use to preserve your current standard of living is your Lifestyle Money. This includes the money you use to pay for where you live, the food you eat, and the vacations you go on, among others. People often run into barriers with this type of money because they aren’t willing to sacrifice their standard of living to fix financial problems.
- Transferred Money consists of the money you’re unknowingly and unnecessarily giving away or spending. Common examples of transferred money include how you pay for your home, how you pay for major capital purchase, and what you may pay in taxes.
A financial advisor worth his weight knows that there are two ways to truly help someone financially. First, they help you find better products that generate higher rates of return but require more risk. And secondly, they help you identify and eliminate costly and unnecessary losses.
Personally, I believe that the second option presents more of an opportunity to truly help clients. From there, we can then start to discuss the first option. Think about it this way, you have an inflatable pool with two holes in it. You can either pour more water in but continue to see the water drain over time. Or, you can repair the holes, stop losing water, and then continue filling up the pool to your liking.
Which option sounds better to you?
Chris Jacob is a Registered Representative with Saxony Securities, Inc. Securities offered through Saxony Securities Inc. (SSI). Member FINRA, SIPC. Non-security products and services or tax services are not offered through SSI. Cadeau is not affiliated with SSI.