The purpose of this series is to educate consumers on some simple principles that will take the mystery out of the often complex world of managing one's financial affairs.
The first distinction is to realize there are only seven variables that can be manipulated or managed in creating your financial future and wealth. They are:
Savings as a percentage of gross income
Rate of return on invested savings
Legal and other considerations
The first three variables are entirely within the control of you, the client. Your number one determinant of financial success and wealth building is your career and ability to earn an adequate income to sustain your desired lifestyle. Self-employment and hard work in North America have accounted for the creation of the vast majority of millionaires, rather than inherited wealth, over the last two hundred years.
Savings, which are the first step in capital formation, are also critical, until such time that investment management becomes the driving force behind continued asset building.
Most people are interested in being comfortable in life with a focus on attaining a desired standard of living for their ideal vision of retirement. Others have greater aspirations.
But no matter what your objectives are, the first step in creating financial independence is the ability to live on less than your earned income. The discipline in doing so is the same whether you are earning an income of $30,000 or more than $100,000.
The final four variables can involve the use of outside Advisors. Risk management covers all risks that can affect both the assets you have, such as a home, and your ability to sustain your standard of living, should your income be interrupted. These can include areas such as medical benefits, out of country travel insurance, life insurance, disability and critical illness insurance, among others. If any of these risks should affect you or your family, then it will impact your current lifestyle as well as your potential retirement lifestyle.
Tax planning is important since it affects the amount of money left over to fund your lifestyle and savings. It can be as simple as taking advantage of all deductions when filing your annual tax return to the use of corporations, holding companies and Trusts. The use of a qualified tax specialist is recommended but be careful not to let the tax planning become the focus of your entire financial planning strategy!
Managing your investments to earn a return on your capital, never mind the return of your capital, is important to assist you to achieve the level of overall savings from which to fund your retirement and other lifestyle goals. Earning a return on your money is a way to reduce or make up for the amount of savings needed to fund your hopes and dreams. We will cover this in more depth later in the series.
Finally, you need to pay attention to the legal and other areas that can impact your financial affairs. The most basic set of documents are a Will, Power of Attorney and Medical Directive. These form the context for managing your life. Again the input of a qualified specialist is needed to ensure that your wishes are fulfilled.
A simple financial plan will cover these areas in some detail while a formal plan will get into more detail and complexity especially when it comes to strategies for optimizing the solutions or client outcomes. Call us for an appointment today to review your situation with respect to your personal planning situation.
Mutual funds and segregated funds provided by the fund companies are offered through Worldsource Financial Management Inc., sponsoring mutual fund dealer. All other products and related services are offered through Brian Fitzsimons/Fitzsimons Financial.