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Missed Fortune – Better Results Spring From Better Strategies

Posted on | August 26, 2012

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The Way Things Have Always Been Done

We all get comfortable doing things a certain way. When we’re getting the desired results, that’s great. But what about when the results aren’t what we’d want?

Do we stubbornly hang on in the hopes that we’ll get a different result? Or do we change our game plan?

These questions are critically important as they relate to taking ownership of our financial future. For instance, the average American taxpayer has roughly $4,000-$5,000 a year that is going down the drain. These are otherwise payable taxes that could be diverted to more productive causes like savings, investments, or a retirement nest egg.

The only reason people keep letting that money slip away from them is that they don’t yet know how to put it to better use. They haven’t learned how to reposition their assets without increasing their outlay by one dime. They haven’t learned how to minimize taxes.

These represent little things that can add up quickly over time. By not repositioning that money, they give up the possibility of an extra $6,000-10,000 or more a year that could be growing and compound for future use.

Most people tend to accumulate their money in two general categories. One is their retirement savings such as 401(k)s and IRAs, the other is in real estate; usually meaning their home.

If you are following the crowd by socking away money in an IRA or 401(k), you could have 2-4 times as much money saved at the end of the day if you were accumulating that money in a tax-free vehicle, rather than a tax-deferred or taxed-as-earned account. Likewise, if you’re trying to get out of debt by sending extra principal payments to your mortgage company, you may be missing out on a fortune because you don’t know what you don’t know.

Finding The Money That’s Going to Waste

There are six common ways that people miss out on money that they could have been putting away for their retirement planning.

  1. They use short term investments for long range goals.
  2.  They use long term investments for short range goals.\
  3. They keep large amounts of money sitting in the bank earning 1% interest.
  4. They use “crawl” investments like CDs and money markets that crawl toward the finish line.
  5. Sometimes they use “walk” investments like annuities that keep them walking toward the goal of financial independence.
  6. They use IRAs and 401(k)s to save for retirement without understanding that these are not the best way to save.

The key flaws that many of these approaches lack include liquidity, safety of principle, tax-free growth, and a predictable rate of return.

If you believe that waiting until you’re 70 ½ and taking minimum distribution will save you on taxes, you’re in for a rude awakening. You’re not saving yourself from taxes; you’re simply postponing and delaying the inevitable. Such a strategy will dramatically increase the amount of taxes you’re going to pay in the end.

You could have got it over and done with by repositioning that money into a better savings vehicle, paying the applicable taxes, and having that money be tax-free from that day forward.

By the same token, getting out of debt by sending extra principal payments to your mortgage company is not a safe or liquid way to go. And you’re earning zero rate of return by using this approach. If you’re sitting there right now with a 15-year mortgage, you may be making a $100,000 mistake.

If you wish to get a better result than you’re currently getting, you must be willing to learn and apply the proper strategies to make that happen.

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*Life insurance policies are not investments and, accordingly, should not be purchased as an investment

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