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The 4 Rules of Financial Institutions

Breaking news alert – the financial industry has an agenda for your money! Okay, no offense, but if this is breaking news to you, then you need to read this article more than most.

Yes, the financial industry has an agenda for your money. Everywhere you turn, almost every solution you’re offered has their best interest at heart, not yours. But, shouldn’t your financial actions support your most important goals? Shouldn’t the effort you’re putting in be working to further your best interests? Absolutely.

Whose Agenda Are You Furthering?

If you fail to acknowledge the simple fact that the institutions have designed things mostly to benefit themselves, you may find yourself never living the life you envisioned. Essentially, the game of finance is just that – a game. Successful players take the time to understand the rules and instead of admitting defeat, figure out how to make the rules work to their benefit instead.

Now, the point of this isn’t to paint the traditional financial industry as the enemy. Besides, making them the enemy doesn’t do you or I any good, we still have to deal with them every day. But there are in fact rules that the financial industry adheres to. Rules that you need to be aware of, as they can limit your financial success. You can’t change their agenda or the rules they stipulate for the game. But, you can define the way that we live and work within them, and bend them to your advantage.

The 4 Rules of Financial Institutions

The traditional financial industry has four core rules that they live by:

1. They want your money. This simple rule is what starts it all. You want to save for retirement? Here’s an IRA. Oh, you want your employer to help you save for retirement? Here’s a 401(k). When you’re ready to save for your child’s college education, pick from our selection of 529 plans. And the list goes on. The institutions have designed solutions for your biggest needs simply because of rule number one – they want your money.

2. They want your money systematically. Once you give the institutions your money, they want to make sure that you keep giving it to them, on the same day, every moth, year after year. Think about 401(k) contributions – these often come straight out of your paycheck. People often make IRA contributions on a schedule as well. Many times, we operate in ways that are convenient for us, hence paycheck deductions. Yes, the institutions do a good job of tricking us with convenience.

3. They want to hold onto your money for a long time. All of that money you’re putting into your 401(k) is locked away until you’re 59 ½. And just in case you get antsy before that, you’ll find yourself slapped with taxes and penalties galore should you try to pull it out. Isn’t it funny how you have to pay to get your own money back? For all of those responsible people who want to keep saving into their IRA past this same age, don’t worry – they’ll hold onto it for you until your 70 ½ .

4. When the time comes, they want to give back as little as possible. Money that you take out of your 401(k) goes in pre-tax. That means when you go to take it out, you’ll be paying taxes on it. The same goes for an IRA. This is different than a Roth IRA, where you put in post-tax money. Concerning IRAs, they also don’t want you to let those sit and grow for too long. They’ll keep it until you’re 70 ½ , but then you must start taking distributions from it. This lowers the principle, which lowers the return.

Why Does It Matter to You?

Yes, you can’t change the rules of the financial institutions. But you can change how you live within them. And I’m not trying to trash 401(k)s, IRAs or any of the other things we’ve mentioned here. These aren’t “bad” things to do – in fact, they can be essential tools to help you succeed financially.

What is important for you to take away is that part of winning the game of finance is mastering a balancing act. Financial success depends on a healthy balance of money that is under your control, and money that is out of your control. Based on these rules, all of your money shouldn’t be tied up in long-term savings accounts. Life happens, that’s a fact. When it does, you need to be able to access your money when you need it. For instances where your money is tied up, you need to know what role these strategies are playing and exactly how they fit into your complete financial life.

You don’t lump all of your goals into one end all, be all goal. You have multiple goals, multiple things you’re working toward. Money is the same way. You have to dedicate different buckets of money to different goals. And it’s not just about having a lot of buckets – it’s about having the right ones that are best suited to the purpose that money is serving.

Let me put it this way – one of my cardinal rules for reaching your full financial potential is to never have more money out of your control than in your control. Remember this, and you can go far.


There are many other areas to consider but most people ignore these. If you need help designing your plan for retirement or just a second look, we’re happy to help.

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