Leaking Financial Bucket

In this article, I am going to talk about what is a “Leaking Financial Bucket”,  how we can reduce the velocity of the leaks to build wealth faster.. 

What is Financial Bucket:

Financial bucket is the accumulation of the money, which a person can earn throughout his/her life. That money can come from various sources like - income like salary, business income; any investments like stocks, real estate etc; retirement accounts like IRA, 401K; savings; interest income etc.

We work really hard to fill this bucket as fast as possible and as much as possible, so that we can have a better lifestyle. But there are few problems with the bucket - there are several leaks in the bucket. For example - Market Risks, Taxes, Inflation, Health Issues etc. Let me talk about each of the leaks and how we can reduce the velocity of these leaks.

Market Risks - many of us invest our money in the investment vehicles, which are stock market based - stocks, mutual funds, 529 for college, retirement accounts (IRA, 401K etc.). There is always a lot of risk involved in such investments in case the stock market goes down. We have seen major recessions every few years. The negative returns can have a very big impact on your portfolio. If the market goes down by 50%, then it has to go back up by 100% for your portfolio to reach the original position. For example - if you invested $100 in the stock market and it went down by 50% to $50. Now for this $50 to go back to the original $100, the market has to go back up by 100% now. So losing money might not be an option.

In my research papers, I have spoken about how to learn a company's financial analysis for long term investments & technical analysis for short term investments. Please read my research papers on my blog “shashwatFinanceIdeas.blog”. Learning about the company’s fundamentals can reduce the risk on your stock related portfolio.

Taxes - Taxes are a big part of money, which goes out of our income. Looking at the past tax history, we are not sure if taxes will go up or go down in future. Looking at the National debt and Inflation, it will most likely go up in a few years. So it’s best to invest some of your money in Roth IRA type of accounts, where you pay taxes up front, but when you withdraw during retirement, it is tax free (both principal and gain).

Inflation - Inflation is another factor, which can quickly chew up your money when you keep a lot of your money in a savings account. A savings account might give only 1% interest, while average inflation is around 3.5%. So you just keep most of your money in the bank, you are most likely burning your money. As I mentioned in my previous article (available on my blog), at least 5% returns are Must for wherever you invest your money. So invest wisely.

Health Issues - Health issues can greatly deplete your savings, in case something major happens to you or your family. So make sure that you have proper health coverage to safeguard yourself. 

By addressing the above 4 leaks, you can greatly reduce the velocity of these leaks and accumulate wealth faster.