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Making Financial Decisions

It pays to have a long term view

By Evelyn Jacks

Does your relationship to your money define you? It's an important question, because your emotional attachment to money can significantly influence your investing results.

Money of course is neutral-it has no feelings and it doesn't care. When you identify your emotional connection to your money; and learn to deal with it objectively, you can move from a "present orientation" in your thinking towards a "future vision" for accumulating more capital (saving rather than spending), taking better care of it (stewardship) and sharing it with family members (reciprocity).

This is important because you may think you want to get rich more quickly these days, given all the market volatility. In reality, it's important to keep your eye on the ball.

Most people simply want to be affluent. I like to define affluence as having three main outcomes:

  • Independence, resulting from the use of your financial skills
  • Peace of mind, resulting from use of your financial knowledge
  • Confident and purposeful decision-making, behavior which enables you to live and retire in dignity, with enough resources to cover both needs and wants.

Most important, thinking about affluence over time, rather than just for today, requires an afer-tax focus. 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.


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