I think the best place to begin building financial wellness in your life to is understand the path of money. What I mean by that is how money comes into your possession and then where it goes. I call this your money machine. Like any machine, understanding and maintenance of it will either move your forward or hold you back. So let's get learning.
I didn't grow up knowing much about money. I knew I was supposed to make it and spend it in order to survive, and that I shouldn't spend irresponsibly, but that's basically all I knew. I began studying money in my early 20's and applying the teachings that I learned. One of my favorite lessons about money came from the owner of Keller Williams (the real estate company my team and I work for), Gary Keller.
In their Think Like a CEO, Gary Keller & Jay Papasan discuss the path of money, and provide an awesome graphic to go with it.
I love how easy they make it to understand. I encourage you to listen to that podcast episode, by clicking the button below. I'm going to briefly unpack it here in this blog post.
Step 1: Money Comes In
In order to put money down a path, you must first start with ... money! You typically get money in 2 ways:
1. You work for it
2. You have income from capital assets
Note: You may get an inheritance or a lump sum out of the ordinary, but we're focusing on the consistent stream of money for the sake of this post.
That is what we are going to call your "cash flow". That is the money you are able to work with and send down the path.
Step 2: Money Goes Out
Once you've got money to work with, you have 4 options for what to do with that money. You can either:
This may seem basic, and it is, yet financial wellness is about putting money into all of these buckets in the appropriate proportions (appropriate proportions being the keyword). Financial "illness" is appropriating your money in the wrong proportions into these buckets, or missing some all together.
CHALLENGE: Without doing a deep dive into your finances, where would you say that you put the largest portion of your money? What about the smallest?
Below, you can see how the graphic connects the 2: Money comes in, becomes cashflow, and then goes out into any of 4 buckets. Now whether you save it, donate it, or spend it, that's the end of the path for that money.
If you invest it, however, we continue down the path.
Step 3: Invest to create additional cashflow
If you choose to invest your money, you will need to decide where to invest it. That is the next step in path of money. You can either:
1. Choose to lend your cash to someone who controls your money (like money markets, CDs, bonds, t-bills, and private lending.)
2. Purchase an asset, which you own (like stocks, REIT's, mutual funds, real estate, & businesses)
You can also choose whether you want to be a passive investor, in which you have no influence over the income you receive from your investment. (You don't control it.)
Or you can choose to make an active investment, whereby you do have control and can make improvements to the investment in order to acquire more income from it. An example would be real estate or a business. You can improve both to improve the cash that you receive from them.
From your investment bucket, you now have additional cash, which can be recycled into the top of the funnel to generate more cashflow. It is your money machine. The better you understand it, learn the right proportions of money to allot to it, and apply what you learn, you are guaranteed to manifest financial wellness in your life! Stay with me on the Rockstar Lifestyle Blog as I take you step by step from financial illness to financial wellness and help you manifest the life of your dreams!
Have a question about this? Leave it in the comments below!