How Efficient Is Your Financial Engine?
By Joseph J. Bilello

      In 1930 nothing made an impression like driving a new Cadillac. It was the ultimate statement of importance and affluence. The most notable characteristic of 1930 Cadillac sedans and roadsters was the 452 cubic inch, overhead cam, 16 cylinder engine, the largest engine ever put into an American production model. It was grossly inefficient by today’s standards, delivering 165 horsepower—equivalent to a 2006 Volkswagen Beetle. The sedan weighed almost 6,000 pounds and had a top speed of about 90 mph. If you got eight miles per gallon, you were probably going downhill all the way. One thing about the Cadillac, though—you were definitely riding in style.

      There is a parallel between that Cadillac and financial planning: Think of the body style of a car as your lifestyle, the engine as your financial management, and fuel as your income. Luxury, size, and comfort are always going to increase weight and the amount of fuel required. In other words, it is going to require more money to drive a large and luxurious lifestyle. There is nothing wrong with riding in style as long as it fits into the long-term goals in your financial plan.

      Regardless of what kind of car (or lifestyle) you drive, one of the most significant factors is the efficiency of your financial engine, that is, how much energy (or money) is wasted converting income into lifestyle and net worth. People who have full tanks of gas (i.e., large liquid balances in their accounts) are not as compelled to worry about a little waste here and there. But if you stop and look at what it can mean over the long haul, wasted money takes on an entirely new level of importance.

      What would be the result of slightly increasing your financial efficiency and using those extra dollars to build for your retirement? Consider the following scenario: Assume that you are 45 years old, have a 20-year investment window, and receive a 10-percent return on investment. Take the amount of money you could save by more efficiently funding your lifestyle, convert that to a monthly investment in your net worth, and multiply it by 773. That is approximately what it would add to your retirement account in 20 years. Every dollar per month invested could build $773 in 20 years.

      Have a 30-year window? Multiply by 2,300.

      Whether you choose a lifestyle that is symbolic of a Volkswagen Beetle or a 1930 Cadillac, don’t simply think in terms of how much it takes to fuel it—think about how to more efficiently convert income to lifestyle and net worth. Is it time to tune up your financial plan?

Joe Bilello, ChFC, CEP, RFC, is certified by and a charter member of Christian Financial Professionals Network (CFPN) and is President of Avanti Wealth Management and can be reached at 407-331-7330 or info@avantiwealth.com.