The most important essential lesson is that our lives are shaped by a simple fact.  The success or failure of your financial future will be based on what you know today.  What you know today will determine where you will be five to 10 years from now.  Financially, we assume things to be true that are not true because we have been told by financial institutions how to think.  Many financial organizations stand to profit from misconceptions and create a fear that you will fail financially without their help.  They are busy telling you what to think, instead of how to think.  Many of their traditional solutions continue to feed the problems you face in the future, not solve the problems.

PERSPECTIVE
How can you be aware of something you’re not aware of?  In many cases, you have made decisions based on the information you had at that time.  Now, I want you to into your kitchen, look around and what do you see?  While you’re there, pull out a chair and stand on it.  Look around.  You will begin to see that room from a different perspective.  Even though you have been in that room a thousand times before, you will discover things you have never noticed before.  Now I want to challenge you to mentally stand on a chair and take a look at your financial life from a new perspective.  You will begin to see things differently.  With more knowledge and a new perspective, your life will change dramatically.

Of all the opportunities that you have discovered in your life, which were the most important?  Of these opportunities, which ones changed your life forever?  Now ask yourself these questions: How would the opportunities that I am not even aware of, change my life?  If I were given one wish, one gift that would fulfill my life, what would it be?  Happiness, wealth, health, love…there are many ways you could answer that question.  In a very simple way, I would wish to live the best life I could live.  Think about that for a second.  If given the opportunity, I would like to maximize the gifts I have been given, so I could enjoy my life and share with others.  Your answer to what you want in life may be different than mine, but understand one thing: the gift and opportunities you have in life are already inside you, but you just can’t see them.  Discovering these gifts and opportunities is simple.  Look for them, and when you find them, learn about them.  Your life will change.  It’s time to live the best life you can live.

There is enough stress, worry and concern in your everyday life that you many think that changing your life will take a lot of time and energy on your part.  But, to change only takes thought and some knowledge.  The real truth is that your everyday struggles take up all your time and you have been enslaved by them.  In your financial world, the answer to many of your problems is understanding how money works.  It is unfortunate that, up until now, you have not been given the opportunity and knowledge to improve your financial life.

Your financial health is centered on much more than simply trying to pick a winning stock or mutual fund.  There is not one product that you can purchase that will solve all our financial problems.  The solution comes when you understand that everything you own has financial value.  When you discover that everything has value, then you can start to understand how you can use your assets as financial tools.  These steps will help you create more options and opportunities in your life.   Many people are mistaken that the only future dollars they have are their retirement plans and government programs.  This is a very narrow approach to the problems you will be facing.

There are many essential lessons that will help you develop a thought process that will not only aid you in your everyday financial life, but also will become the foundation of the major decisions you make in planning your financial future.  Traditional thinking has put liniments on what your thought process can be and, in turn, produces outcomes that will also be limited.  The solution to these challenges, these Essential Lessons, will help you understand that everything in your life has value.  Future value.  When you discover the value of everything you have, then you start living the best life you can live, right now, today.

If you had the ability to create the most perfect investment today, what would it look like?  In creating the most perfect investment for yourself, you may discover what you really want these investments to look like, compared to the traditional thinking in today’s financial world.  The next 10 minutes is very important.  You will discover the difference what you really want in your financial future and what you are currently doing.  In creating the most perfect investment, answer the following questions.

RISK

In creating the most perfect investment, would you want to have a lot of risk involved? 

NO, in a perfect investment, you would not want any risk.

TRADITIONAL THINKING

In the financial world, can you lose money?  As an example, can your 401(k) lose money?  Can your home lose value?  Are mutual funds and stocks subject to losses?

Obviously, there are different degrees of risk and different types of losses.

Taxes due on these accounts may also be considered a loss, along with inflation and the buying power of that money in the future.

GUARANTEES

In creating the most perfect investment, would you like some guarantees on the rates of return you would be receiving?

YES.  A perfect investment would be filled with guarantees.

TRADITIONAL THINKING

In many cases, investments today offer very few guarantees when it comes to rates of return in the future.  Sometimes, if guarantees are offered, there may be stipulations attached to the guarantees, life having to maintain an account for a certain number of years.  Does an IRA or 401(k) have the guarantees you want?  Does the equity in your home have guarantees?  Do the mutual funds or stocks you own have guarantees?  Does traditional thinking continue to feed the problems you don’t want or does it really solve your problem?

PENALTIES

In creating the most perfect investment for yourself, would you want a lot of penalties attached to it?

NO.  You would want to free yourself of as many penalties as possible.

TRADITIONAL THINKING

Many types of financial products have penalties attached to them.   There may by penalties for the early withdrawal of an IRA, 401(k) or any other qualified plans.  There also may be penalties for NOT taking enough money out of your retirement account.  Are there early-withdrawal penalties for a bank CD?  There could be a penalty for paying off your house too soon.  There also may be penalties inside annuities and some mutual funds.

LIQUIDITY, USE AND CONTROL

In creating your most perfect investment, would you want to be able to get to your money whenever you needed it?

YES.  Having access to your money is very important.

TRADITIONAL THINKING

With all the traditional products that you have, how easy is it to get to your money if you need it?  If needed, you could go to a bank and attempt to get a loan on the equity in your home.  But this process could take some time and there would be a number of fees you would have to pay.  You could sell off your stocks or mutual funds to get some money.  To get liquidity, use and control of your money, you may have to pay fees, penalties, and taxes.  Your retirement accounts offer little or no options in offering liquidity, use and control of your money.

PROTECTION FROM CREDITORS

In creating the most perfect investment, would you want it protected from creditors?

YES.  If you were involved in a lawsuit, you would want this money protected.

TRADITIONAL THINKING

There are many things in your life that have value.  If you were to get sued, what types of financial products would be protected from lawsuits?  Is the money you have in the bank protected from lawsuits:  how about the equity in your home – is it protected?  How about your investments or retirement accounts?  You may be surprised to learn that many of your assets are not protected from lawsuits.

LEVERAGE

In your perfect investment would you want to use the least amount of money to create the most amount of wealth?  This is leverage.

YES.  The ideal investment would use the least amount of money and create the most amount of wealth and benefit.

TRADITIONAL THINKING

There is nothing you can do to drive forward the value of traditional investments.  If you overfund you 401(k), it doesn’t make the rate of return increase.  Paying your house off as fast as you can does not increase the value of your home.  Paying off your car as fast as you can does not add value to that car.  Yet every financial institution in the world is telling you that’s what you should be doing.

When investing in your IRA or 401(k), the hope is that, over a period of time, the money you deposited will compound and grow.  Leverage is different from compounding.  Leverage creates wealth or value right away.  Very little of traditional thinking is centered on leverage.

TAX-DEFERRED

In creating the most perfect investment, would you want the gains in the investment to grow tax-deferred?

YES.  If given a choice between having the gains in my investment taxed now or at a later date, I would choose to defer the tax.  If given a choice, I would rather pay no tax at all on the gains.

TRADITIONAL THINKING

Very few things in our lives avoid taxation.  Many types of investments are taxed on their growth on an annual basis.  Is this true of an IRA, 401(k) or any other qualified plan?  No, these plans are taxed upon distribution of the money.  Remember, 100% of the money in these types of programs will be taxed, whether you’re dead or alive.

TAX-FREE

In your perfect investment, would want the money to be distributed tax-free?

 YES.  It would be ideal if I could receive all the proceeds of my investments tax-free.

TRADITIONAL THINKING

Are any of your mutual funds or stocks increasing in value tax-free?  How about the increases in bank savings programs or CDs?  You already know your retirement accounts will be taxed. It is possible that the tax of your retirement income could be 20, 30, or maybe 40%.  It seems, no matter what you do, you will continue to feed the problem of taxation in your future.  Traditional thinking does not solve the problem of taxes in your life.

COLLATERAL
In creating your perfect investment, would you want the ability to use this money as collateral now for loans or other things you would like to do in your life?

Yes.  Having control of this money and having the ability to leverage this money to do the things in life that you would like to do, would be good.

TRADITIONAL THINKING

Sometimes lending institutions will grant loans if there is some type of collateral or hard asset involved.  Your home could be considered collateral if it has some equity in it.  Is your IRA, 401(k) or qualified retirement program considered a collateral asset?  No.  Collateral typically has value that is relatively safe and would assure a lending institution access to this money should you default on the loan.  If money is needed by you or your family, what asset do you control that could be used as collateral?  Do the investments you have provide value to you or to the financial institution that provides the product?  Think about it.

TAX-DEDUCTIBLE PAYMENTS
In your investment, you would want the payments you make to be tax-deductible?

YES.  In a perfect setting, you would want as many tax deductions as you can get.

TRADITIONAL THINKING

Some types of payments and investments are tax-deductible from your income.  Within the guidelines of the IRS, payments to IRAs, 401(k)s and other qualified retirement accounts are tax-deductible.  But, how about a typical mutual fund investment – is that tax-deductible?  No.  Are payments to an annuity, bank CD or bank savings account tax-deductible?  No. A principal payment on your home is not tax-deductible, but the interest portion of that payment is.  Remember, taxes now and in the future will be the largest transfer of your wealth that you will experience in your life.

DISABILITY BENEFIT
In the event of an illness or an accident, would you want your deposits in your investment to continue even though you couldn’t make the payment?

YES. It would be comforting to know that this investment would continue to be funded if you were ill or had an accident.  A very large percentage of home foreclosures occur due to disabilities.

TRADITIONAL THINKING
Will your employer continue to make your 401(k) deposits if you are unable to work?  Will your investment firm continue to make monthly payments or deposits on your behalf while you are sick or injured?  Will the bank or mortgage company make your house payments if you’re disabled?  What types of investments for you have that will provide these payments or deposits for you?  The reality is that you will probably have to spend down the asset or investments you have, if you become disabled, just to survive.  This is a big problem: money going out and no money coming in.

WEALTH TRANSFER

In your perfect investment, if you were to die, would you want all the money in this investment to transfer to your family tax-free?

YES.  This is just common sense.  Why would I want any of my money to be taxed when I die?

TRADITIONAL THINKING

Just about every investment you have will transfer the tax due on those investments, to your heirs, after you die.  Traditional thinking continues to use the concept of accumulating money and compounding the taxes due on the accumulation far into the future.  If you die, the taxes on your 401(k), IRA and qualified retirement plan must be paid.

Now, let’s compare your most perfect investment you created to some of today’s traditional thinking and beliefs.  If you applied the 12 questions in your perfect investment to an IRA or a 401(k), how would perfect investment to an IRA or a 401(k), how would the answers compare?  Well, of the 12 elements that you desired in your perfect investment, only two of the things appear in an IRA or 401(k): tax-deferred growth and tax-deductible payments.  The comparison reveals 10 other elements that you wanted in your perfect investment don’t appear in an IRA or 401(k).  So, the question must be asked, why are all the things you want in a perfect investment so different from what you are doing in your financial life today?

This is a powerful essential lesson of how money works in your life.  You may discover how traditional thinking comes up short compared to the results you would like.  If you were to apply the same questions to a mutual-fund product, you will discover that there are only one or two favorable elements in that type of investment compared to what you wanted.  Compare your answers to other types of investments like bank CDs, stocks, owning your home annuities and real estate.  Once again, you will discover that in all these different types of investments there are very few elements that you actually wanted.  Your financial goal should be to find the types of investments that best suit your model investment, not someone else’s.

YOUR ANSWERS

Your answers to these questions should be very eye opening to you when it comes to how your money works.  If you had the ability to create the perfect investment for yourself, how would these questions be answered?  Would there be a lot of risk involved?  Would there be some guarantees?  Would you create an investment where there would be penalties?  Would you like liquidity, use and control of your money?  Would you protect t from creditors?  Would your perfect investment create leverage?  Would it increase tax-deferred?  Would you make it tax-free when you decided to use the money?  Would design it so that can be used as collateral to secure loans?  Would the money you put into it be tax-deductible?  Would there be a disability benefit on the payments?  Finally, would the money you have transfer tax-free to your heirs? You will discover, when creating the most perfect investment, the answers you gave are far different from the money and investments you have right now.  The types of money that you have are far from perfect.  One final question you should ask yourself: If given a choice, would I want my money to be fully taxed, partially taxed, or tax-free?  While this question really answers itself, why is it that we ignore what is logical and continue to expose most of our saving and investing efforts to full or partial taxation?

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