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The Three Types of Money

woman counting her money at st. charles financial services

Successful financial planning is about knowing how your money can work for you vs. against you. Not every penny you earn ends up in your checking or savings account. Your earned income will first filter through taxes. You then pay your bills, food and other living expenses. How do you budget for these costs while still making sure you have enough left over for savings and investments when prices are increasing?

The first step is to change how you think about money. There are three types of money:

  • Accumulated Money
  • Lifestyle Money
  • Transferred Money

The money used to secure your financial future comes from these three areas. Each type represents different expenses or investments, but they all contribute to your overall financial planning process. Understanding these categories and how they work together can help you strategize more effective ways to save money without reducing your current standard of living.

Continue reading to learn more about the three types of money.

What is accumulated money?

Accumulated money represents the dollars you currently have invested and are saving. It is what you set aside to grow and to use for long-term goals, such as retirement planning for your future or college financial planning for your children. Accumulated money plays a vital role in both your future and your financial survival.

Examples of accumulated money include:

  • Your stocks and bonds
  • Your retirement fund
  • Your real estate

You could focus your attention on these dollars in order to find better investments that potentially pay higher rates of return. However, you should not neglect the impact of lifestyle and transferred monies. Understanding all three types of money can help you save more and increase your accumulated money for both retirement planning and estate planning.

What is lifestyle money?

Lifestyle money represents the dollars you are spending to maintain your current standard of living. These dollars cover not only the essentials, such as food and transportation, but also purchases that add to your quality of life.

Examples of lifestyle money include:

  • Where you live
  • What you eat
  • What you wear
  • Where you vacation
  • What you do for entertainment

While everyone wants to solve their financial problems, reducing their current standard of living is not a popular option. For many people, this is where the conversation ends. What if there were a way to help address the issue without having to impact your present lifestyle?

What is transferred money?

Transferred money represents the dollars you may be transferring away unknowingly, and unnecessarily. If you can learn to recognize and recapture these transfers, then you will be able to add more money to your finances.

Examples of transferred money include:

  • What you pay in taxes
  • What you pay in non-deductible interest
  • How you pay for your house
  • How you fund your retirement accounts
  • How you pay for major purchases (cars, education, weddings, etc.)

At St. Charles Financial Services, we believe that there is more opportunity to serve clients by helping them first avoid the losses, before trying to pick the winners for investment planning strategies. Our focus begins with attempting to eliminate the involuntary and unnecessary wealth transfers.

Consider this: There are two ways to fill up a bucket that has holes in it. One way is to pour more in, and the other way is to first plug the holes. If we choose the latter option, then the bucket will fill up even if the flow is just a trickle. Which strategy is closer to your approach to financial management?

Balancing your budget

Applied knowledge is power. Knowing about accumulated money, lifestyle money and transferred money is an important part of the financial planning process. You need to grow your understanding of how each type of money works. Each category influences the other. For example, reducing your amount of transferred money can put more funds into your savings and investments. This increases your total accumulated money. When you achieve a healthy balance of accumulated money, lifestyle money and transferred money in your budget, you can help secure your financial future (long-term goals) and meet short-term goals.

Get the assistance you need! Why not meet with a financial planning specialist? At Saint Charles Financial Services, relationships are fundamental to everything we do for you. Our team of financial professionals in Missouri will get to know you and understand your current outlook, and then customize an investment plan to meet your needs.

Contact Saint Charles Financial Services to meet with a financial planner in St. Charles today!

We are here to help protect what matters most to you!

Contact SCFS today and let one of our financial professionals customize a financial plan that helps prepare you for an enjoyable retirement in the future.



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