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Step 2 - Maximize Your Financial Resources

January 18th, 2008 at 04:49 pm


The second step on the path to financial abundance is to maximize your financial resources. Venture capitalists know that the best way to maximize their finances is to use OPM (Other People’s Money). We can learn from these successful investors and use OPM for ourselves.

If you have a company-sponsored retirement plan, at a minimum, contribute enough to your account to receive the maximum amount that your company will match. If your company will match 50% of the first $6,000 that you contribute, when you contribute $6,000, your retirement account will receive $6,000 from you and $3,000 from your employer.

The $3,000 becomes “free money” from your employer and provides an immediate 50% return on your investment. On top of this great return, you are also getting a boost from your favorite uncle (Sam). If you are in the 28% tax bracket and pay 5% state taxes, your $6,000 contribution will save you approximately $2,000 in taxes.

Combining the $3,000 you receive from your employer with the $2,000 you receive from Uncle Sam, the $9,000 in your retirement account only cost you $4,000, with $5,000 in OPM. You get an incredible 125% immediate return!

By using Coverdell education savings accounts or Section 529 college savings plans to save for your children’s educations, your educational savings will grow and no taxes will be owed on the earnings from these plans, so long as the money is used for eligible education expenses. This tax savings is another way to use OPM to reduce educational expenses.

A Health Savings Account (HSA) is the only saving vehicle that combines the benefits of an IRA with the benefits of a Roth IRA. When you contribute to your HSA, all contributions are tax deductible as are contributions to your IRA. If you do not use the HSA funds and let them grow until retirement, all withdrawals are tax free, similar to a Roth IRA, as long as the funds are used for medical expenses. Once again, your tax savings provide OPM when you fund the HSA as well as when you withdraw the HSA funds in the future.

In “Financial Abundance Guide,” I cover many other methods of maximizing your financial resources by using OPM. When we get an immediate increase in the amount of our saving through company matching funds or tax savings, we have increased our investment return before even deciding upon our investment approach. That is what is “maximizing your financial resources” is all about.

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