Whatever your financial destination, there are 3 things that you will need to consider to turn your dream into a reality.
Comparable to how we use google maps to navigate us to unfamiliar destinations, we must also apply a similar process to planning our financial destination.
To determine your financial goal, you can start by:
- Defining your end point – Where do you want to be?
- Defining your start point – Where are you now?
- Planning your journey – Develop a strategy to drive yourself from point A to point B
At first, this analogy makes it all sound very simple. But, to answer these questions properly we will need to get into some numbers and the nitty-gritty details.
Using numbers and facts is the key way to accurately determine what your future is likely to hold given your current position. Get your calculators ready!
1. Defining Your Financial Destination
Let’s begin with a fun question – What does financial freedom look like to you?
What lifestyle can you see yourself having? Do you own a fancy new car? Are you sailing your luxury yacht across an infinite ocean? Are you travelling the world?
This is the time to use your creativity and a bit of imagination, so don’t restrict yourself. After you have a clear picture of where you would like to be, your next step is to put some numbers to paper.
For example, what would your estimated cost per annum be for the following:
We can then use this number to determine the Total Net Assets required to provide you with that degree of passive income in retirement. You can calculate your total “Total Net Assets Required” by multiplying “Total Cost Per Annum” by 20.
Before you look at this number and start panicking, all that we want you to understand is the following:
We start with the end in mind for the fundamental reason that it enables you to estimate the passive income required to fund your dream lifestyle upon hitting retirement.
Now that we have your final destination, it’s time to work out your current position.
2. Where Are You Starting From?
The next step to realising your financial destination is to look at where you are standing right now. Therefore, we must calculate your current income and assets, as well as any outstanding liabilities.
Here are some questions you should consider as a guide:
Do you currently own any appreciating assets?
When we talk about appreciating assets, we are not talking about your house or your car.
Your house is typically linked to a mortgage which actually turns it into a liability. Additionally, you can’t eat your house! A car, on the other hand, is a depreciating asset that reduces in value over time.
This is why neither your house or a car should be counted as an appreciating asset.
Some examples of appreciating assets to consider for your calculations include:
- cash savings
- current investment properties
- managed funds
- or bonds.
What is your current annual income? Moreover, what’s your total gross income earned since you entered the workforce?
You can calculate this by working out your annual salary for your last few jobs.
For the younger generation, this could be reviewing your payslips since when you entered the workforce at 15. For our more “mature” generations, this could be reviewing your annual salaries for over the last 20-30 years.
Now, what do you have to show for all of that income earned?
For some of you, you may feel slightly confused about where all that earned money went. For example, how does $100,000 of income just disappear?
The reality is that by now, most of us have earned significant amounts of money, yet have little to show for it. This is why accumulating appreciating assets early in your life is so important.
Do you have any outstanding personal debt?
Do you owe any repayments on a car, business or mortgage? Does your mate Johno still owe you that money that you lent him several years ago?
In addition to the above, some other examples may include:
- investment loans
- personal loans
- credit card debt
Take some time to write down a list of any personal debt, as well as the total amount owed for these.
Your final step is to calculate the following:
Total Appreciating Assets – Total Liabilities = Total Net Assets
If you get a negative number, don’t stress, you’ve probably done it right. The most common reason for this is having an outstanding mortgage.
Now that you know where you’re starting from and your end goal, let’s look at how Infinite Wealth can help you to reach your goals.
3. Plan your journey by developing a strategy from start to end
Education is the first step on the path to reaching your financial destination.
At Infinite Wealth, we use a unique methodology designed to leave our clients empowered and in action. We can help you to understand the fundamental principles of creating wealth and money; uncovering new opportunities and inefficiencies in your current situation.
We provide practical, easy to understand, real-life strategies for investment, cash flow, capital appreciation, debt reduction and risk management. This enables you to reach your goals using what you currently have available to you.
If you would like us to help you to achieve your financial goals you can fill in a form here. One of our client managers will be in contact with you shortly.
Start your journey now and live the life you want for yourself or your family.