The Circle of Wealth: How To Reclaim Your Finances Without Taking Risks

Tim: [Music] [Music] When it comes to finances, no one wakes up in the morning and says, “Man, how can I mess up my financial situation today?” On the contrary, we’re all doing what we think is best for our specific situation, given our specific resources. But the truth of the matter is that a lot of times, conventional wisdom—whether that be from the media, your family members, or mentors—a lot of the advice that we hear is actually giving away control of our money and giving away control of our cash flow.

What we do is help our clients, and help you, to become more in control of your cash flow and to make the most of your resources by making your money as efficient as possible. The reason we do this is simple: whoever controls your money controls your life. So here’s a 30,000-foot view of how our process can help you to make your money more efficient. It all starts with this circle right here, your circle of wealth.

Olivia: That’s right. One thing we all have in common is we all have a circle of wealth. Some are larger than others, and others are larger than ours, but we all have one simple thing in common: we want that circle to grow. Now, there are many ways that you can grow your circle of wealth, but what we have found is that every dollar that’s in or going through your circle of wealth is broken up into three areas: there’s accumulated money, that’s the money you have saved and invested, then there’s lifestyle money, that’s the house you live in, the car you drive, the things you do, the vacations you go on, and it’s the schools your children go to because that’s a lifestyle choice for Mom and Dad.

Tim: And the third type of money is transferred money. Do you know what transferred money is? Well, it’s money that we’re giving up control of unknowingly and unnecessarily. It’s things like interest on debt, it’s things like taxes, it’s things like fees and planning inefficiencies. And the key here is that we focus on the transferred monies. Why? Because we feel that is the best way to help our clients make their money more efficient—focus on not losing money rather than taking risks to get a higher rate of return.

So what we’d like to do is sort of show you what differentiates our process from the rest of the financial services industry, and it’s real simple. Do you know that in 2023, according to the Bureau of Labor and Statistics, there were over 272,000 financial advisors in America? And I would be willing to bet that less than a thousand focus on wealth transfers. The rest of them focus on moving the money that you have, because that’s the grease that makes the wheels operate in the financial services industry—moving money.

Olivia: The conversation basically goes, “Hey, you have X amount of money earning 5%, we can show you how to get 7%. Now, you have to take some risk to get there, and you may lose, but at least you’ll get a higher rate of return, hopefully over time.” And then you’ve got to buy into whether or not that’s a strategy you want to implement, but see, there’s no guarantee that you’re going to make more money.

Tim: The second way the financial services industry could help you is to discuss how you could live on less, how you can reduce your lifestyle in order to save more money. Now, that’s a conversation that I don’t want to have with my wife, and I’m sure a lot of people don’t want to have that conversation with their spouse or themselves, especially these days. As you know, the cost of everything is going up between inflation, interest rates, and let’s face it, the salaries that people are earning can’t necessarily keep up with the spending and that lifestyle inflation that came back in the COVID times. So it makes it challenging, and maybe more challenging than ever, to make your money more efficient on your own.

And that’s why we’re here, educating people as to ways to make that money last, make sure it’s accessible to serve you and your family, and help you accomplish your goals all along the way.

Olivia: So how we do that is to focus on these wealth transfers. And basically, our process has four steps. The first step is to identify exactly where you’re giving away control of your money, and when we show you that logically, it will all make sense. The second step is the hardest step in the process—you’ve got to stop doing what you’ve been doing for 10, 15, 20, even 30 years, and it’s a hard habit to break.

Tim: The third step is to show you where to put your money so that you’re in complete liquidity, use, and control of your money. We call it the L.U.C. Factor—putting money in a place where you, and only you, could access it. And then the final step is really where the magic happens, where you borrow money from yourself to fund your lifestyle and pay interest back to an entity that you own and control. And if you take a look at that, basically your money never leaves your control. And that’s the lens through which we look at things to make sure that you’re in control of your money at all times.

Olivia: Now, when we focus on these wealth transfers, again, it’s things like interest on debt, it’s things like planning inefficiencies, it’s things like taxes. But you see, if you paid a dollar in taxes this year that you didn’t have to pay, you don’t only lose that dollar—you lose something more valuable: you lose opportunity cost. You lose what that dollar could have earned for you, and you lose it for the rest of your life.

Tim: So we focus on opportunity costs because every move we make financially eliminates choices that we could have made had we not made that choice. Exactly. And we always say we’ll never see the interest we don’t earn on our money. You know, so a lot of people pay cash and they do it in order to avoid paying interest to outside entities. But what happens is we get a hole in the bucket, if you will, because we lose the opportunity cost, and that’s the unseen.

So we quickly identify where you’re giving up control of your money in six key areas: mortgages, how you’re paying for your real estate, taxes, how you’re funding your retirement, protection areas, insurances, college funding, how you’re paying for your children’s college, and then how you’re making major cash capital purchases. Because what we’ve found is it’s not what you buy—it’s how you pay for it that is going to make the difference in your financial life.

Olivia: So what we try to do is put you in control of your own money. Right now, a lot of the time, you know, depending on your situation, it may be the mortgage companies, the banks, the credit companies, the government, or those major capital purchases like cars and paying for education—all of these entities seek to gain control of your money and your cash flow. And that’s where the rub comes in.

Tim: So by putting yourself in control, you really regain control of your entire life because now you control all of that cash flow. And I would argue that most of life’s frustrations come from not having access to money when you really want or need something. Now, it might sound overwhelming, it might sound impossible, but the fact of the matter is it’s very simple. Do you remember when you first learned how to play this game, tic-tac-toe? It’s a simple game with simple rules, and the conversation went something like this: the person who showed you how to play basically said, “Hey, here’s a new game, it’s called tic-tac-toe. You’re X, I’m O. You have to get three in a row.”

Olivia: And because that person taught you the rules to play, but not the rules to win, you lost and you lost and you lost until you figured out how to prevent your opponent from getting three in a row, and then nobody won. So then you went and showed somebody else, and you taught them the rules to play, but you didn’t teach them the rules to win. Our process teaches you the rules to win the financial game.

Tim: And it’s funny because, you know, those financial institutions are the ones who are advertising, who are luring us in with all of those offers and giving us the information to make our financial decisions. So it makes sense that they’re winning right now, right? And you know they’re winning because a lot of times you’ll feel stuck, frustrated, unable to do the things that you want to do even though you earn a great income. And that’s how you know it’s not how much money you make, it’s how much money you’re keeping at the end of the day that’s really going to make an impact on what you’re able to achieve in this life and the impact that you’re able to have.

Olivia: And you see, conventional wisdom teaches us that we need to focus on getting a higher rate of return on our savings and investments. But here’s the problem—those products that we own are just that: products. Nobody’s showing us how to utilize those products to make our financial life better. And that’s the problem. If we only focus on getting a higher rate of return, and we completely ignore opportunity cost, taxes, and interest on debt, our total circle of wealth can grow, but these problems are going to grow as well.

Tim: So the best analogy that we make to differentiate our process from others is the fact that other advisors are focusing on getting a higher rate of return and selling you the best product—we’ll call them the golf clubs. Our approach is to focus on how you’re using those products—we’ll call that the golf swing. And if you wanted to get better in golf, there are two approaches: you can go out and buy the best clubs, and by virtue of that, you’ll be the best golfer, or you can figure out a way to improve your golf swing. And that’s what we do. We take you down to the practice range, find out how you’re using your money, and then make adjustments to make your money more efficient.

Tim: Here’s a great example of how we help our clients make their money more efficient. We’re going to use an example of a family earning $102,000 per year and they’re saving $6,000 per year, and they’re getting 6% on their savings. Now, it would be a fair estimate to say that up to this point in their lives before they met us, 100% of their financial planning focus was on getting a higher rate of return on this amount of money every year.

Tim: So, if they’re putting away $6,000 and earning 6%, they’re earning $360 per year of interest on their annual savings. And if they increase their rate of return by 50%, they now earn $540. And here’s the question: is that really moving the needle for them? They just increased their rate of return by 50%, and it didn’t necessarily move the needle for them financially.

Olivia: Well, they increased their rate of return, but they also increased the risk that they were taking in order to get that rate of return.

Tim: Exactly. So it comes down to, was it worth it for less than $200? So the question becomes, how can we increase the amount of savings or the amount of interest earned on your savings without taking on additional risk? And our approach is to focus on the $96,000 of expenses. And we’re not talking about, you know, stop going out for dinner three nights a week and only go out two nights a week, and you’ll save $100 a week. No, we’re talking about, how can we reduce your expenses without reducing your lifestyle? I want to repeat that: how can we reduce your expenses without reducing your lifestyle?

Olivia: That’s where we focus on the wealth transfers, because the wealth transfers are already baked into your cash flow cake. So here’s the benefit of reducing your expenses without reducing your lifestyle: if we reduce your expenses by 1%, that’s $960, and that is the equivalent of earning 16% on your $6,000 of savings. That’s how you move the needle.

Tim: Now, here’s the thing: we’ve all been told that the higher the risk, the higher the what?

Olivia: The higher the return.

Tim: That’s right, the return. Well, have we ever taken risk and not gotten a return?

Olivia: Unfortunately, yes.

Tim: But here’s the deal—how much risk do you have to take to stop an expense?

Olivia: Zero.

Tim: All you have to do is stop doing it. What does it cost to stop an expense? It doesn’t cost anything. So that’s how you win this financial game, and this is how we help our clients make their money more efficient: reducing their expenses without reducing their lifestyle.

Olivia: You see, we can prove that this works because 16% of $6,000 is $960. So that’s what makes us different, and that’s how we help our clients.

Tim: Now, if you had a bucket that had holes in it—things like debt, opportunity costs, taxes, interest—and you had a faucet trying to fill up that bucket, how long would it take to fill up your bucket?

Olivia: Well, it would never be full because all of the money would continue to leak out.

Tim: Exactly. So when it comes to filling up your leaky bucket, there are two methods: number one, turn up the water pressure, and you know, eventually maybe it’ll overflow. It’ll continue to leak, but as long as you keep that water flowing, you’ll be fine. But the second method is to plug the holes in your leaky bucket, and then that bucket is going to fill up even if you only have a trickle.

Olivia: And here’s the point: conventional wisdom tells us that we should save more into that leaky bucket. It doesn’t make sense. Why try to increase the flow? You should never increase the flow unless and until you plug the holes.

Tim: So our first step will be to see if we can find areas where you may be more efficient without the need to reduce your current lifestyle.

Olivia: Now here’s the question: on a scale of 1 to 10, how does what we do meet with what you’re looking for from an advisor?

Tim: If you’d like to learn more about how we put this solution to work for our clients, we’d be happy to take a look at your situation. Visit our website today at Tier1Capital.com and schedule your free strategy session. We look forward to speaking with you soon.