Scarcity Strategy for Building Wealth
Have you ever received a large check or deposited a lot of money into your bank account? Maybe you got a large tax refund, inherited a lot of money, or collected a nice profit selling an investment. What usually happens when this money gets deposited into your bank account?
IT MAGICALLY DISAPPEARS
I don’t know how it happens, but it always does. Things pop up that swallow your money. Your car may need to be repaired. Or some large medical bill arrives. Or a big flat-screen TV arrives on your doorstep.
I remember not too long ago, when I had paid off one of my rental properties. I decided to apply for an equity line on this property. I wanted to have the ability to buy good deals without going to a bank for financing. With the equity line on this property, I could simply write an equity line check instead of applying for a new loan. Sounds good, right?
Well, since this property was an investment property, the bank required me to draw a minimum of $15,000 on the credit line when it was issued. The title company sent us a check for the $15,000. This $15,000 was deposited into our checking account. Guess what happened?
IT MAGICALLY DISAPPEARED
I’m probably better than average with money, and it still disappeared.
This is a classic mistake and I’m kicking myself for making it. Yes, I’m human too. It’s not a mistake I usually make, and there’s at least one strategy I use to avoid it.
In most cases, I create scarcity in all of my bank accounts. This includes my personal bank account, or rental property accounts and my business bank accounts. Each week, our bookkeeper sends me an e-mail indicating that our bank accounts are about to be negative. This is normal operating procedure for me.
I create scarcity in our bank accounts by sucking the money out of the accounts and storing it in interest-bearing money market accounts. OK, I admit, these accounts are not paying very good interest rates right now. But it’s still a benefit, and it’s simple. In most cases, you can transfer money from your bank accounts to these savings accounts online in seconds.
Why do I do this?
For two reasons.
- Obviously, the interest income is nice to receive. Even 1.5% is better than 0%.
- To stop the money from disappearing.
If I were to leave the money in my bank accounts, it would magically disappear. Once the money is out of my accounts, it is safe and sound. I can’t spend it. Now, I do realize that I’m the reason the money disappears. You have probably heard the old saying …
We are our own worst enemy!
Well, it’s true. If you’re trying to lose weight, don’t put a chocolate cake on your counter. Same goes with money. If you’re trying to build wealth, don’t leave excess funds in your checking account.
When I first starting working in the corporate world, I got some really good advice from one of my mentors. He said, “Every time you get a raise, increase your 401k contribution.”
Now, I would rather put the money into real estate than a 401k; however, his lesson is very valuable. He basically was saying to invest ALL extra income.
A raise should be a way to increase your wealth, not your standard of living.
What do you do with your raise? Do you spend it? Do you increase your standard of living by purchasing something on payments?
Don’t be like the majority of other people by spending all the money that hits your bank account. Suck that money out of your account and protect it -keep it out of your hands. Use scarcity in your bank accounts to keep your expenses down.
This might be a particularly important strategy in an economy like this one, when you’re trying to keep expenses down.
