Introduce the four financial stages in life: Spender, Saver, Wealth Creator, and Legacy Provider |
There are typically four financial stages in life: Spender, Saver, Wealth Creator, and Legacy Provider. The first is the Spender. The spender has no liquid assets and has no other choice than to borrow from a financial institution then making a major capital purchase. (A major capital purchase is any purchase that cannot be paid for, in full, using normal monthly cash flow.) The saver's lifestyle consumes 100% of their after-tax cash flow - regardless of income. They tend to buy on credit and they live financially below the zero line. Next is the Saver. The saver hates borrowing from others and prefers to save toward a major capital purchase and then pay cash. The saver must then save again for the next major purchase. While the saver does not pay interest to a financial institution like the spender, the saver forgoes earning future interest on the money consumed by the purchase. Savers typically have a steady income, rarely borrows on credit, and occasionally gets close or below the zero line. Next is the Wealth Creator. The wealth creator saves to build up a continually increasing pool of capital. When a major purchase is required, the wealth creator is then in a position to choose how to finance the purchase at the most favorable terms and rates. The wealth creator saves and invests at work so they can live in retirement like today adjusted for inflation. Wealth creators use credit responsibly and focuses on having enough to fully support themselves through their life expectancy. Finally there is the Legacy Provider. The legacy provider acts much like the wealth creator, but sets a lifestyle ceiling that allows them to preserve a financial legacy with which to endow future generations. |
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