Building America’s Wealth – Understanding Your Personal Economic Model
An education which provides students with the ability to get a job and earn a living, but does not teach them how to successfully manage the money they are going to earn is incomplete.
There is an urgent need to change the way we educate our youth about personal finance if we intend on helping them achieve a brighter financial future and a better tomorrow.
As a society, we spend a small fortune for our children to receive an education, yet they graduate with little to no understanding of how to manage the money they will earn.
An understanding of the way financial mechanisms actually work, not just how they are perceived to work, is the first step toward ensuring long-term financial well-being.
This is the Personal Economic Model®.
It was designed so that you would be able to visualize what is happening with every dollar that you earn. Its fundamental purpose is to help you see and understand how to balance your current lifestyle desires with your future lifestyle requirements, so that you can be adequately prepared to live the kind of lifestyle you envision for your future.
Here is how it works.
You have income coming into this huge tank on the left called your Lifetime Capital Potential. It is the largest tank because it represents all of the money you are going to earn over your lifetime. While it is a large amount, at the same time, it is also a finite amount.
The dollars that you earn do not collect in this tank, but rather they pass through this tank, coming to you in the form of your monthly cashflow. The very first piece those dollars encounter is the Tax Filter.
This is where the federal and state governments collect their share of your hard-earned wages. Every dollar you ever earn will eventually pass through the Tax Filter. What is left over, your after-tax cash flow, continues on into the Lifestyle Regulator.
This is the most important piece of the whole model. The entire direction of your financial future is determined by the daily decisions you are making right here. It is the point at which you must continuously regulate how much after-tax cash flow you allow to be consumed by your current lifestyle (spent and gone forever), and how much you pump up the Future Lifestyle tube in the center, into your Savings and Investment tanks for your future.
Many of the dollars that you earn over your lifetime will rightly go toward funding your current lifestyle, but a portion should also be set aside for funding your future lifestyle as well.
So that by the time you are no longer able to continue earning an income, you will already have the necessary financial resources set aside in your Savings and Investment tanks to continue funding your lifestyle into the future, all the way to your life expectancy.
This is financial balance. To manage your lifetime earnings in such a way as to have enough money set aside in these two tanks by the time you stop working, that you are still able to continue living the same kind of lifestyle you enjoyed during your working years.
It’s a much different idea of financial success than most tend to envision, but it is nonetheless just as desirable all the same.
If living a balanced financial lifestyle is the general goal, how do you also quantify what you need to be doing in the present, in order to secure your long-term financial future tomorrow?
By answering The Four Most Important Financial Questions:
1. Do you know how much you need to be saving on a monthly or annual basis to be able to retire at your current standard of living and still have your money last until your life expectancy, adjusted for inflation?
2. Do you know what rate of return you need to be earning on your savings and investment dollars to be able to retire at your current standard of living and still have enough money to last until your life expectancy?
3. Doing what you are currently doing today, do you know how long you will have to work before you would be able to retire and still continue living your current lifestyle all the way until your life expectancy?
4. If you don’t do anything differently than you are today, do you know how much will you have to reduce your standard of living at retirement in order for your money to last until your life expectancy?
Would the overall financial health of families in this country be drastically improved if their financial decision-making process was informed by an understanding of their own answers to these questions and the associated implications?
The importance of such a prospect cannot be overstated. Every American should have the opportunity to truly understand how the financial decisions they are making today, are continuously impacting the outlook of their future tomorrow.
If we do not teach our students to understand the importance of this kind of financial balance, and how to answer these four vitally important questions, then the education they are receiving is not adequately preparing them to achieve the goals they have for their future.
It isn’t hard to notice that the majority of Americans today have not been equipped with the tools required to succeed financially over the long term. Those who have been living an unbalanced financial lifestyle (neglecting their future lifestyle requirements along the way) during their working years, are increasingly turning toward social security and other government funded programs as their only means of survival during their retirement years.
This is the very heart of the problem that we should endeavor to resolve. To reach Americans at a critical time in their lives with critical information which can help them to make more efficient use of the financial resources they will generate over their lifetime, so that they are able to enjoy the kind of financial future they are hoping for tomorrow.
In working together with like-minded leaders to pass the appropriate legislation, and to successfully implement existing solutions, we are positioned with an opportunity to have an immensely positive impact on the collective future of this great nation.
Our success will be measured by the positive impact we are able to have on the financial future of others, and our resolve driven by the prospect of the lasting influence of a reliable financial education.
The kind of influence that gives rise to a nation whose populace is equipped with the knowledge, resources, and understanding to build lasting wealth for themselves and achieve the financial success they are so earnestly striving for.
Because the question is not whether we should endeavor to achieve our dreams for the future, but rather which day will be the day that we are going to start.
Together, let us turn the dream of a wealthier financial future for all Americans into our reality.