Efficient Use of Financial Resources Creates Unlimited Financial Possibilities

The definition of financial planning is ‘efficient use of resources’.  Unfortunately the concept of resources seems to be commonly accepted to be a scarce resource that needs to be controlled so you don’t lose it.  An underlying values system that generally accepts money as something that is risky is indicative of a fear of losing this ‘scarce resource’.  On the other hand, a view of money that understands its unlimited potential will approach day-to-day spending, investing, and financing decisions in a completely different way.  Interestingly, either view will usually result in reinforcement of the initial belief making it extremely difficult to recognize the missed opportunities that could have been if a balanced and integrated perspective had been implemented instead.

The fear based, scarcity decision approach is indicative of the lack of foundational financial knowledge of our adult population. Unfortunately financial basics like we received in reading, writing and arithmetic were not part of a school curriculum because it wasn’t necessary 30-50 years ago.  This lack of training also unfortunately means a lack of respect and a misguided belief that the ad-hoc, trial and error, and hearsay learning is all that’s necessary.  This belief is especially unsettling when it is combined with an assumption that if someone has achieved a certain level of wealth that those people are the best teachers in the area of money.  Perhaps, but not necessarily.

Every situation is different and what someone else did to create wealth is not necessarily going to be applicable for everyone else.  Wealth creation is a very personal, emotional and situational subject, particularly when the financial marketplace is changing so dramatically and so quickly.  Experiential learning is obviously extremely valuable and can result in seemingly solid financial situations, but more often than not it can also result in misguided strategies and result in missed opportunities, often that the unsuspecting person doesn’t even realize where they could have done better.  The missing key is the basic knowledge to know what questions to ask of the professionals who will be providing the specific financial products and strategies for each unique and personal situation.

This means that within our families, organizations, and communities, we have to realize that the world or money has changed; that it is a very complex technical industry requiring specialized knowledge, training and expertise and that the average person has a responsibility to know what’s important to them so they can communicate their needs effectively to financial professionals to get answers.  It is certainly not prudent to expect a financial advisor to do it all for you, nor is it prudent to think you can do it all yourself.  Financial decisions, like medical decisions, are very personal and emotional and require a lot of understanding of a multitude of variables which require individual attention and often multiple financial experts.  The personal competence and confidence when making decisions are what financial experts are not trained in or compensated to provide for you.

This also means that to benefit from a balanced and therefore efficient use of financial resources an awareness of personal beliefs and priorities is the most important step.  This will help you find and communicate effectively with the professionals who have the technical ability to implement strategies and plans for you to experience goals beyond what you might have originally thought possible.  It’s also critical to recognize that money is not a scarce resource and that risk (or loss) is something that can be managed.  This again requires appropriate knowledge and skills to work with the professionals to earn, manage and maintain your finances efficiently.

Here are a couple examples of how knowledge (or lack of it) can potentially limit opportunities that on the surface might have previously appeared prudent, or risky:  

1.   Assume you have $10,000 in cash and you have a $10,000 balance on a credit card.  One strategy for these 2 resources would be to take the cash and pay off the credit card. This certainly makes sense because likely the interest charged on the credit card will be higher than what you’re getting on savings.  Another strategy would be to invest the $10,000 to try to grow it into more money because ‘it’s nice to have money in the bank.’

However, how many people would consider using the $10,000 cash to pay off the credit card, then taking the $10,000 available credit and investing it into a wealth creating opportunity such as a business, investment, real estate project?  There are potential tax benefits to doing this as well as the potential flexibility built into your financial situation.  Plus, if the wealth creating opportunity generated ongoing income which would cover the credit card payments and provide additional income for the investor now your money is working to create more wealth.  Not to mention that you would still get to experience the ‘money in the bank’.

What if the $10,000 available credit was used as an investment along with others and meant that your pooled money could access even more potential because collectively your funds were able to purchase a larger investment, property, business program?

In either of these 2 scenarios, your use of the $10,000 could enable continued growth and wealth building that was efficiently using resources in a useful way where not only your situation could benefit but potentially others as well.  Obviously there are some critical skills and knowledge and loss protection strategies that would be considered in using your financial resources in this way, so this is certainly not to advocate that this is the right situation for everyone.  It’s an example of how viewing money from an unlimited perspective requires development of additional foundational skills and knowledge in order to confidently and effectively take advantage of an integrated strategy such as this.

2.   Now consider an example of what a situation could look like if you have enhanced your skills, knowledge and confidence and now have $1,000,000 available cash.  One thing you could certainly do with the money would be to invest it into businesses (through stocks), or into real estate.  If you bought real estate for yourself with the money you could then own your home which is certainly a high priority for most people.  However, if you were considering an investment, you could purchase a property and receive rental income.  This is now good for you and for others.  However there is a considerable amount of missed opportunity and flexibility and therefore added risk with these all-or-nothing approach.

If you instead combined various financial resources, and pulled together proper legal, lending, investing, insurance, tax and loss protection strategies, your situation could effectively provide a more stable and abundant financial plan for earning, managing and maintaining your wealth plus providing opportunities for others.

You could potentially take a percentage of your $1,000,000 (say $250,000) and purchase a property worth $1,000,000 by taking a $750,000 mortgage.  You could receive rental or lease revenue as cash flow plus you would still have the $750,000 additional cash to invest and be available for other opportunities or situations that might come up if the market or in your personal situation.  You don’t have this flexibility or security with the ‘all-or-nothing’ approach.

Taking this one step further like we did with the $10,000 being pooled with others, if you took $250,000 cash and a mortgage for $750,000 to acquire a $1,000,000 property, you could potentially provide an opportunity of others as well by developing or expanding your property.  This means, that with a smaller amount of money you provide diversification, opportunity, flexibility, security, and an overall efficient plan to create wealth not just yourself, but for others as well.

This is obviously not to say, that everyone should go jump into highly leveraged, creative investment concepts.  Financial planning is about the efficient use of ALL resources, including careful review and planning of your personal circumstances, your knowledge, skills, and the professional advisors on your team.  All these resources will either come together effectively to expand wealth and provide opportunities, or limit potential depending on your underlying belief.  When money is viewed as a scarce resource it is typically from missing knowledge and skills or inappropriate application of partial knowledge.  Either way, not taking advantage of all the resources available to you, or applying them in an inappropriate is usually because of a fear of not having enough, or fear of running out, or losing out.  This means that even some seemingly good financial strategies can on the surface seem to be prudent, when in reality they are sacrificing future opportunities or exposing you to different risks.  Flexibility and consideration of changing circumstances are important factors.

The critical consideration is to be aware that decisions based on fear of loss, or from an underlying belief that money is a scarce resource, are really pointing to a need for the development of financial skills and knowledge.  With increased financial knowledge there is an ability to take advantage of opportunities through competent and confident decisions.   There are infinite possibilities, and million dollar decisions start with the realization that we all have million dollar opportunities.  Million dollar opportunities start by learning to ask different questions to fully understand the benefit of skills such as financial math, financial forecasting, loss protection strategies, integrative planning, values, community, and more. And when we do, the benefits will be experienced within your own family, your organization, your community and our society as a whole!

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