Making Financial Decisions: It pays to have a long term view (Part 2)

In my blog last week, my message to you was “ In the end, it’s what you keep that matters.”

So you can stop thinking emotionally about your investing activities, today. Instead, from a “Real Wealth Management” perspective we want to anticipate how much money is available now and in the future when we need or want it. This requires three skill sets:

  1. Always Include a Tax Filter. To understand the amount of cash flow that is available, we must be able to measure income and capital on an after-tax basis at all times. Measuring wealth “before tax” can over-exaggerate the true amount of capacity one may have to use money when and how we need it.

In my blog last week, my message to you was “ In the end, it’s what you keep that matters.”

So you can stop thinking emotionally about your investing activities, today.   Instead, from a “Real Wealth Management” perspective we want to anticipate how much money is available now and in the future when we need or want it. This requires three skill sets: 

  1. Always Include a Tax Filter.   To understand the amount of cash flow that is available, we must be able to measure income and capital on an after-tax basis at all times.  Measuring wealth “before tax” can over-exaggerate the true amount of capacity one may have to use money when and how we need it. 
  2. Measure Active and Passive Income.    If one of the primary purposes of wealth is to have enough financial resources to replace your actively earned income from employment or self-employment, then we must have a plan to build income sources that stem from invested capital.  Your money is your business, and therefore needs to be managed with strategy and accountable purpose.  
  3. Liquidity and Purchasing Power.    Will cash flow be available in the future when needed?  What will it be worth?  You may need to focus more on this in making investing decisions today, if you think the costs of fees, interest, taxes and inflation may rise.

It can certainly help you greatly to be assisted by a professional services community that follows an inter-advisory, client-centred process for managing your family’s wealth.

But in the end, it’s your money.    You’re the boss of it.  Thinking about the flow of your money over the long term, and on an inter-generational basis, can help you think about current market volatility over several economic cycles, rather than just the current one.  Your decision-making will likely be different through such a lens.

NEXT TIME:  USING STRATEGY AND PROCESS FOR THE USE OF YOUR MONEY

Evelyn Jacks is President of The Knowledge Bureau, a national educational institute focused on excellence in financial education, and a member of the federal Task Force on Financial Literacy.  For information about self study courses and books visit www.knowledgebureau.com

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