Recently I’ve had a hard time justifying the time spent on conventional financial planning. The financial industry has always taught a very limiting “Needs Based” approach. It’s limiting because all it does is try to help someone figure out what they want in the future, which is very, very difficult if not impossible to do.
We identify your goals in the future, then we just work everything backwards to tell you what you need to do today. Sounds easy enough, right?! But the whole process is assumption based. We assume an interest rate, we assume a tax rate, we assume an inflation rate, we assume you actually want to retire and we also assume at what age you think you might like to retire.
Then we just plug your numbers into the (conventional) Financial Planning Software we have and voila, we have a mathematically correct set of assumptions. However, your life isn’t like that, is it?
The biggest problem is that we have no control over the list of assumptions we use. We have no control over interest rates, inflation, the economy, future taxes or stock market corrections every 6.5 years or so. So, why are we still using this ineffective and out-dated form of Financial Planning? Because the industry wants us to.
I’ve learned that Cash flow is a true measure of prosperity, not net worth. How about getting control of your cash flow and making the most of it today. This is something you can have complete control over.
So, how about this? Let’s look at every investment, every insurance product, every mortgage, loan and Line of Credit or Credit Card and see how we can make the money already flowing in to us and out from us work for us rather than everyone else? It’s all about cash flow and the movement of money. Financial Institutions want you to build net worth. The reason is that your money sits in their coffers. They want to control the cash flow. Your net worth is stored on their Balance Sheets. So, what do they do with it? They keep it flowing. They focus on cash flow and make money with your money.
It’s time to let go of the assumptions and take control of the things you can control. Like your cash flow.
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