moneyFYI
Financial Freedom Is Merely Organized Common Sense
The Fabric of Financial Planning
Complex, yet taken as a whole, simple
In our lives, we find things where many parts create a whole that is distinct from the parts employed. How many of us have ever examined a gas engine in a car? Coupled with the transmission and the differential and the axle and wheels, we have the ability to move the vehicle. I don’t know how many parts there are in the drivetrain of a car, but it fascinates me that with so many, they work at all
How many of the pieces could fail and still have the car be functional? Maybe a few, but not many and some of the pieces are uniquely required. If the fuel pump fails, itself a combination of many parts, the whole thing stops.
So, if I want to drive from home to Costco, everything must work.
Financial planning and financial independence are like that
There are many aspects to the plan. The list includes:
- Income producing asset acquisition and exploitation (education, business, job)
- Personal asset acquisition. (house and car)
- Cash management,
- Cost control,
- Debt management,
- Risk management (premature death, disability, asset protection, health)
- Emergency fund,
- Accumulation for longer term purposes (education or retirement)
- Portfolio management,
- Tax management,
- Agreements and instructions, (wills, powers of attorney, shareholder agreements, trusts)
All of the pieces must be present or the entire plan is at risk.
The goal is financial independence
The pieces must fit and work together or the goal is difficult or impossible. Like the car. It might not run on cheap gas and if it does at all, it won’t run as well.
Suppose you are a newly minted heart surgeon. A decade and more of advanced training. Huge earnings, but not wealthy yet. You could probably put off portfolio management and maybe the details of the accumulation plan, but only for a little while. The rest of it matters immediately.
If you overbuy and over finance a house, you will be coming from behind for quite a long time. Control lifestyle while you are still accustomed to living on less. Debt management is a function of two things. How you go about paying off debts you have incurred and how you go about incurring debt. You don’t have to pay back what you don’t borrow. Nor the interest.
Risk management and agreements matter even before you start to practice. A heart surgeon has great economic value. Years of high income just waiting to be collected. A dead heart surgeon is worth the same as everyone else. Nothing. Insure your most valuable asset – the ability to earn.
Tax management is necessary. There are options that reduce the bill. For a high earner, every dollar of tax saved is two dollars of income that need not be earned or that can be diverted to other uses.
Synergy
Synergy means, “the interaction or cooperation of two or more organizations, substances, or other agents to produce a combined effect greater than the sum of their separate effects.”
A good financial plan offers synergy. 1+1=3. If well done and balanced, the result is achieved easier, cheaper, or sooner. Putting off planning is useless. The scarce resource is time. All of the parts will be done eventually. You might as well start early, gain the power of compound interest, learn the tools, and enjoy then outcome.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have been a partner in a large, international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
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