To win financially we must challenge our beliefs about money and become proactive in the use of economics in financial decision making. The superficial, easy answer cannot be trusted; the deeper and broader economic effects must be examined.  Following is how we use the economics of personal finance to help clients increase their financial security and success.

1: We help clients learn how the fundamental economic principles of opportunity cost, velocity of money, and macroeconomics dominate their financial results, even without their knowledge or consent. Financial institutions get rich by utilizing this knowledge in their favor, not yours. Financial planners can’t help because this knowledge is not even part of their training (if you doubt this, just ask one how these principles are affecting you right NOW).

2: We help clients create an accurate picture of their “personal economy” as it exists now. This “picture” enables us to clearly identify the existing “leaks and holes” in the financial “plumbing”, which create the excessive drainage of personal earnings to financial institutions and government.

3: We apply the principles to identify all of the costs related to a financial choice, many of which are not visible until economic cause and effect is understood. Often, where one sees gain there is hidden macroeconomic cost destroying the hoped for results. It’s like throwing talcum powder on the invisible man: what is then seen can be truly shocking.

4: We apply the principles to not only stop the drainage but to literally reverse the flow, using the recovered money to build personal financial security and wealth. The negative is turned into a positive. Challenge yourself: “if what I believe to be true is actually not true, when would I want to know?"

5: The fundamental principles prove that the simple statement “rate of return” is almost meaningless. What really matters is the “external” rate of return, which is what you have really “netted” when you use the money or which is what your heirs and beneficiaries really net if they ultimately use your money. Challenge yourself: “am I content to merely hold on to an untested sense of security or belief, or do I want to make sure I truly win?”

6: The principles prove that financial products of every type, which are sold by making the “features” appear attractive, are often only attractive in a “showroom” type (“environment free”) setting. Features can appear attractive in one environment (circumstance), but be financially disastrous in another. We do not live in showrooms or in a financial vacuum. The negative effects of the environment, our real lives, must be seen, accounted for, and corrected if we are to have any hope of winning.

7: Risk: greater emphasis should be put on the level of catastrophe that would result if a certain event did occur rather than on the probability of it occurring. We reject the common belief that it takes high risk to achieve high reward. That is self serving nonsense from the financial industry used to promote sales while dodging responsibility when things crash and burn.

Applying economic principles to personal finances is like looking beneath the garbled surface of a 3-D picture to clearly see a new world of potential for increased efficiency, security, prosperity, and independence. The first step is a commitment to yourself that your financial security will not be left vulnerable to false perceptions, whims of circumstance, and the opinions of others. You can test this message by completing the “My Wealth Transfers” worksheet. Challenge yourself: “am I satisfied?” If not, we can proceed to create a picture of your “personal economy” and identify the areas where Personal Financial Economics can turbo-charge your financial security and success.