A basic truth, law, or assumption.
A fixed or predetermined policy or mode of action.”
– American Heritage Dictionary
Prosperity is about the principles we live by. It’s a mindset, or a way of life—more than just a portfolio. When it comes to the fundamentals of financial management, start by learning and practicing the Principles of Prosperity.
Below, we’ll break down what the Principles are, and how they can help you be the master of your own financial health.
Prosperity Principle #1: THINK
The Problem: When we see “scarcity” as the basic truth of our world, we operate from a mindset that leads us to poor financial habits and decisions. We move through life as though there’s not enough—enough time, space, money, or otherwise.
The Principle: Our results will come from our thoughts, our beliefs, and our consciousness about money. If we move through the world without the fear of scarcity, we see more opportunities.
- Work on your personal development and mindset – YOU are your most valuable asset, and your thoughts determine your results!
- Don’t hoard money, use it! Hoarding money comes from a scarcity mentality, not a prosperity mindset.
- See Prosperity as more than just finance. Thinking holistically and living in gratitude is important at all times, but it’s critical when cash flow or assets are impacted by job losses or crisis. Your finances will recover much more quickly if you continue to think from prosperity and abundance.
The Problem: Sometimes we try to do the “wrong” things in the “right way” because we don’t see the whole picture. For instance, we chase the “perfect” investment without first considering how it will affect the whole portfolio.
The Principle: We must see and consider our whole economic picture and how each element affects the others. Your personal economy is an ecosystem, bigger than any one product or decision.
- Understand that everything is connected in your personal financial “ecosystem.”
- Don’t look solely at the rates–nor the impact of any individual debt, investment, or strategy–without considering how the other pieces of your financial puzzle fit together.
- Ask an advisor to help you run the numbers on the impact a financial decision will have on your overall Prosperity.
- See how the other Principles of Prosperity can work together to create “out-of the-box” strategies, such as buying a house to get a boat.
Prosperity Principle #3: MEASURE
The Problem: Most of us have never been trained to consider the cost of our money in financial equations. Nelson Nash said it well in Becoming Your Own Banker: “You finance everything you buy. You either pay interest to someone else or you give up the interest you could have earned otherwise.”
The Principle: We must measure and consider opportunity costs in all financial decisions.
- Understand the hidden costs of saving to make large purchases with cash. Need help? Ask a Prosperity Economics Advisor.
- Measure the real costs of paying down your mortgage early to “save on interest” by considering opportunity costs.
- Consider the opportunity costs of term insurance. Utilize permanent life insurance to ensure that your premiums are not wasted.
- What are the opportunity costs of a private college education? Parents and students alike will feel the impact of these costs, and many savvy families are finding ways to spend less on education.
Prosperity Principle #4: CASH FLOW
The Problem: Typical financial planning focuses on future net worth, but does little to facilitate cash flow in the meantime. Without cash flow, net worth does not matter.
The Principle: Your Net Worth has little meaning if you’re barely scraping by month-to-month. The true value of money is CASH FLOW. Dollars should be flowing both in and out of our personal economies.
- Don’t “lock up” your money in 401(k)s and other retirement plans where access is limited.
- Choose investments where dollars can flow both in and out, or where returns are realized in months or years, not decades.
- Generate multiple streams of income and increase your savings by thinking outside of the box.
Prosperity Principle #5: CONTROL
The Principle: We lose control of our assets when dollars are put under institutional or governmental control.
The Principle: Keep the decision-making power over our dollars whenever possible. The more control you have over your own money, the more freedom you have.
- Be cognizant of management fees. Even low fees can slash profits.
- Except in cases where an employer match makes sense, keep your money out of qualified plans such as 401(k)s, 403(b)s, traditional IRAs, and 529 plans. Such plans have strict limitations on when you can access your dollars, as well as steep fees and penalties.
- Don’t escalate mortgage payments to pay down extra principle. It may seem counter-intuitive, but you have more control with less equity, and your dollars can do more elsewhere.
Prosperity Principle #6: LIQUIDITY
The Problem: When you store money somewhere inaccessible, you’re unable to partake in opportunities, and have less certainty in emergencies.
The Principle: Saving money in a liquid account not only allows us to prepare for emergencies or other stages of life, it allows us to do things we enjoy when opportunities arise. Access to cash in adversity or opportunity increases our CONTROL.
- Whole life insurance is a liquid asset, consider it an enhanced savings vehicle. Utilize the policy to generate cash for other investments and purchases.
- Use investments such as bridge loans and investment real estate rather than qualified retirement plans where money cannot be moved and re-purposed.
- Utilize high cash value life insurance to fund education, rather than a 529 plan.
Prosperity Principle #8: ECONOMIC RATES
The Problem: There’s a lack of proper education surrounding inflation, interest rates, and other economic rates that can cause confusion around financial decisions.
The Principle: Clear away the confusion; informed decisions yield even better results. Armed with the proper understanding of how net rates relate to one another, you can MEASURE the true efficiency of saving, investing and borrowing.
- Have an advisor-quality calculator in your pocket: the Truth Concepts app. This article can get you started on basic ways to calculate and assess rates.
- Just because an interest rate is low doesn’t automatically make it a better deal. Be willing to assess all of your options thoroughly before committing.
- Know that zero percent isn’t always zero…
Prosperity Principle #8: CERTAINTY
The Problem: While many people invest in stocks and bonds, per typical financial advice, it’s really a game of speculation. Money invested based on speculation can be easily lost, and take years to recover from.
The Principle: CERTAINTY is the confidence and conviction that what you want to happen will happen. When you put your money where you can be more certain of the outcomes, you also improve all other assets (including ones with little certainty). Lower your current and future risk by having assets with certainty.
- Aim for true diversity in your portfolio–that means diversifying outside of stocks and bonds. Whole life insurance is an asset with certainty, and can act as a hedge against riskier assets.
- Don’t place all of your life’s savings in retirement accounts that are correlated to the stock market. There are a number of non-correlated assets and alternative investments to consider.
- When making a financial decision, consider the certainty and strength of the decision.
Prosperity Principle #9: ACTUARIAL
The Problem: When investing in the stock market, risk is often balanced with bonds. Yet losses still occur. Remember, risk does not equal reward. The definition of risk is the likelihood of loss.
The Principle: Through “Risk Pooling” insurance companies can overcome risks of longevity and property loss. They manage their risks using actuarial science, so that policy owners don’t lose money in their policies (and historically, policy owners have earned money). This science leverages math, statistics, and expertise to insure a more likely outcome.
- Speak with a Prosperity Economics Advisor to discuss how a whole life insurance strategy can benefit with you. Our advisors take financial education seriously, and can help you learn the strengths of actuarial science.
- Consider what assets you have that balance risk through math and science, and balance them with more CERTAINTY.
- Actuarial science is an interesting topic, and if you enjoy research you might like reading up on how it works.
Prosperity Principle #10: MULTIPLY
The Problem: Typical Financial Planning teaches us to compartmentalize our money into different accounts for different purposes – one for retirement, another for emergency funds, another still for education. Yet that approach is inflexible, unrealistic, and ultimately stunts the growth of our wealth.
The Principle: It is possible, and logical, to multiply the potential uses and jobs of each dollar. Furthermore, we can literally “multiply” our dollars through leverage by collateralizing.
- Treat your assets like a smartphone, and use your dollars for multiple purposes.
- The power of leverage can multiply your dollars by using your cash value or real estate as collateral.
Prosperity Principle #11: LEVERAGE
The Problem: Without leverage, a number of investments and major financial moves become inaccessible or difficult to achieve.
The Principle: Assets that can be leveraged allow you to do more with less, creating efficiency. With these assets, more financing options become available to you, and it becomes easier to MULTIPLY.
- Use the Cash Value of a life insurance policy as leverage to secure a loan that otherwise would’ve been difficult to obtain. This could help you fund a new business, invest in real estate, or make a large purchase you’ve been wanting to enjoy.
- Create strategies with a trusted financial advisor that allow you to multiply money and increase cash flow, while your cash value continues to grow.
Prosperity Principle #12: UNCERTAINTY
The Problem: It’s impossible to think that we can be certain of every choice we make, and it wouldn’t be healthy anyway.
The Principle: Assets with certainty make an excellent emergency/opportunity fund, because it’s something we can count on. Yet, just as moving out of out comfort zone helps us to learn and grow, obtaining assets with some level of uncertainty creates growth. Balance is important.
- As stated earlier, true diversification is key. Balance your “certainty assets” with investments that excite you.
- A degree of uncertainty is necessary, yet it’s important to proceed with an informed mind. You’ll be glad you did your homework.
- Embrace uncertainty! Follow your desires, and be willing to be flexible as you navigate them.
The Fundamentals of Financial Management
Through the 12 Principles of Prosperity, we can see how to:
- optimize our dollars
- increase our cash flow now, rather than waiting for “retirement”
- increase net worth steadily and safely, while moving toward financial independence
Finance isn’t just about a portfolio, it’s about out-of-the-box thinking and a desire to live a life you love–whatever that looks like to you. By turning these Principles into a way of life, you can create the life you want right now. Who says you have to wait until retirement?
We hope you feel inspired to live by these Principles. If you’re interested in working with an Advisor who adheres to these Principles–and teaches them to their clients–contact us today.