Creating Money Systems To Build Wealth

What is a money system? In the larger economic world, they call them "monetary systems". 

It's simply a set of policies, frameworks and institutions that impact creation and the flow of money.

If you're screaming "explain it to me like I'm 5", then a simple example of a money system is your job reports your income to the government who takes out taxes, then the rest of it goes to the bank who pays you what is left over.

Job. Government. Taxes. Bank. Paycheck. 

If you want to build wealth, you have to 

1) Have a basic understanding of these systems

2) Create your personal system

Today, we will be talking about the second but I will link videos below if you want more of an understanding of the first.

Where Systems Break Down

The majority of money systems break down right after the paycheck hits your bank account or arrives in the mail. 

Why is that? 

Because we aren't taught to do this anywhere from Kindergarten to College. Even Finance and Accounting majors understand the business applications to this, but I've worked with plenty of people in finance who don't apply these things to their own lives.

Fortunately, its never been easier to create money systems thanks to technology.

3 Elements of Your Money System

To paraphrase the rapper, Snoop Dogg, you have to have your mind on your money and your money on your mind.

Well money systems help take money off your mind and that's a good thing. It frees you up to go enjoy life or make more money!

One thing to understand about systems is that they can get backed up and become dysfunctional the more complicated it gets. 

We want our money systems to be:

  1. Simple
  2. Automated
  3. Goal-oriented

So what's the last one mean? I worked with C-Level executives of billion-dollar companies who had technology stacks that didn't really do anything to help the business. They were just...there.

As Heroes know, you are the CEO of your life. A system without a purpose doesn't move the needle in helping us achieve modern freedom.

If your goal is to save money for a down payment on a home, then we would add on to our system like this...

Paycheck hits Account X, automated deposit the next day into Account Y. 

It can be that easy!  

Some Complexity Can Help

Now, a level of complexity could be added here to account for behavior. In CEO terms, we call "Risk Management". And the risk we are managing is our emotions and behaviors.

Instead of having Account X and Account Y at the same bank, you could choose to set up Account Y at a different bank entirely.

Why would you do this? Because if Account X is your checking account and that's the bank you look at the most, Account Y can be out of sight out of mind at a different bank you rarely ever log into since its only purpose is to hold money for the down payment.

This minor complexity is still automated and provides safeguards from you transferring some money out of that account for different reasons.

Expanding Your System To Investments

Some investments are included in the system before your paycheck ever hits. Pre-tax accounts are just that, pre-tax. So they are deposited into whatever vehicle (401k, 403b, IRA, etc) that you and your workplace have setup.

However, if you have additional investments you want to make, this part of the system has to be added by you.

If you want to trade stocks and put $500 in a market fund every month, then you can set up an automatic transfer of $500 to the organization you trade with and have a buy order ready to go. 

Simple. Automated. Goal-orientated.

Advanced Money Systems

Money systems usually get more complex when your assets and liabilities increase. 

One of the fastest ways to build wealth and keep your money is to understand pre-tax deductions.

Not all investments are created equal. Real estate has tax benefits in certain places that trading a stock won't have. 

I know reading tax code feels insanely boring and it usually is. So either hyper-focus on what applies to you or hire a professional like a CPA to help you work through that part of the system.

This should give you a basic idea of how to create and extend the money systems impacting your life. 

Look for areas in your life where you could automate payments such as bills, investments and bank account deposits. This will save you time, help you reach goals faster and give you more confidence in your financial wealth.

Make sure the money system you are part of does not stop at you getting paid or your wealth will grow at a snail's pace on a hot August day.   

 

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