Understanding how capitalism works helps set the foundation for financial concepts.
But beyond understanding the concepts, it will help you to progress through each stage and realize your goals of financial freedom and peace of mind.
I find that many people come to our doors because they are feeling stuck in a stage.
Frequently, they are stuck because they do not grasp the concept of what it means to be financially independent and what it will take to get there.
First consider the basic ways to obtained money.
The first is by affiliation: you may marry into it, inherit it, or you may simple be given it.
It is common to think that affiliation is the easy way to wealth, but my experience with several clients tells me that this notion is a fallacy.
In my experience, money acquired this way rarely lasts because the recipient never learned the basic concept of how to invest.
You hear it expressed in this old saying: "A fool and his money will depart.
" My clients are not fools, but they lack knowledge-made worse by the misinformation that comes at them from every direction-can be debilitating.
The second way to obtain money is to earn it by the sweat of your brow.
Although this honorable, most people yearn to get to the point in their life where they can do what they want to do, what is self actualizing for them, without having to worry how much money they make? We like to say that one key financial goal is to make work optional-to obtain financial freedom.
This brings us to the third way to make money, which is what financial freedom is all about.
That is, to let your money make money for you, which requires regular saving and diligent investing? At some point on life, you will make yourself financially independent.
How soon or late in life you reach that point largely depends on when you start saving.
This how capitalism works.
When you produce more than you consume, you create a surplus which is your investment capital.
That capital is saved and aggregated with the capital of others.
We save this capital in banks, which then lend it to companies, or we buy stock that produce working capital for companies, or we invest in real estate.
Your invested capital grows and compounds over the years, as your past investment earnings now generates additional investment earnings on top of the money you are saving.
The goal is eventually is to be able live off the money your money makes, rather than the sweat of your brow.
Then you are a winner.
You not only have financial freedom, you are free to become, do, and have whatever you want.
That's how wealth is created-the capital we save is used to build plants, buy equipment, and develop things that make all of us richer.
When a capitalistic society is working as designed, everyone is producing more than they consumed.
Then the amount produced by the society grows at an increasingly compounded rate.
At this point it is no longer an issue of how to divvy up the pie so it's even; rather, the social objective is to make sure the pie gets bigger so everyone can have a larger share in it.
As we go through the Financial Life Cycle, remember that the goal of each stage is eventually to have your money do the hard work.
That is, your money earns the money you need in order to live a fulfilling life.
The financial life cycle has four parts; the formative years, the accumulation years, the conservation years, and the largess years.
Each part of the cycle is divided into two or more stages.