The Secret to Creating Lifetime Wealth (Part 5)
Image sourced by Amol Tyagi @amoltyagi2
Welcome back!
This blog post covers one of the most important and fundamental financial concepts and money concepts about building lifetime wealth; what wealth is; and what wealth can do for you.
I want you to think of wealth, prosperity, and abundance. Let’s get to it!
If you’re just joining this blog post series, click here to see Part 1, Part 2, Part 3 and Part 4.
In this segment, we’ll explore the 7 key factors that could derail Your building lifetime wealth.
Here are the potential bumps in the road, The $64,000 Question, you must consider regarding analyzing your lifetime income and ability to fund your living expenses and enjoy the lifestyle you’ve grown accustomed to.
To ensure that you succeed and put yourself in a position to enjoy lifetime wealth, analyze how these factors may impact your income and cash available for spending:
1. Inflation – which typically results in an increase in the price of goods and services.
We’re seeing this in the supermarket and other areas today. Simply put, it costs more to live today than it did a few years ago.
Over the weekend, I visited my favorite supermarket Trader Joe’s. They sell bananas as a loss leader to attract customers. For a long time, they charged 19₵ for a banana. This past weekend, I noticed that they had raised the price to 23₵. At first blush, you might say that 4₵ is a small increase. But when we do the math, we find that the price increase equals 21.1% [4₵ increase divided by 19₵].
Hmmm. . . looks can be deceiving.
2. An increase in taxes.
An increase in taxes could result from a case where more items are subject to tax and/or the tax rates increase.
Needless to say, higher taxes means we have less money available for spending. . .
3. An increase in healthcare costs, which we all face over time.
Essentially, we face two risks. Over time:
The cost of healthcare rises; and
We require more medicines, treatments and healthcare services.
This means we have to set aside money to cover these expenses (and/or make choices about which treatments and procedures we will undertake).
Needless to say, as we age we face greater health issues and conditions and need more healthcare.
In other words, our healthcare costs typically Increase over time.
4. A change in interest rates, dividends, distributions or other investment income.
On the downside for example, during the Great Financial Crisis (GFC) in 2008-2009, many companies faced extreme financial difficulty. Many cut their dividend payments.
Many borrowers (debtors) didn’t pay their debt service. This means that if you invested in bonds, you may not have received your interest payments or coupons.
With a real estate investment, suppose tenants don’t pay their rent or operating expenses increase. Then the property might not have enough cash to make a cash distribution to the investors like Dad.
On the flipside, the US Federal Reserve started raising the Fed Funds Rate (interest rate) in March 2022. In total, they raised rates to between 5.25% and 5.50% per annum.
If you are investing money, as an investor or lender, when interest rates rise your interest income would rise and your cash flow would increase.
On the other hand, suppose you are a borrower; under a floating rate loan, when interest rates rise, your interest expense would increase and your cash available to spend would decrease.
5. A decline in the stock market (or other investments) which results in investment losses.
This may reduce the amount of money you have available to invest and on which you can generate income; and reduce the amount of money you have to spend.
This example about a decline in the stock market (or other investments) is an oversimplification of course.
And there’s a difference between whether the investment ultimately recovers or declines permanently.
Be sure to consult your financial advisors and wealth advisors so you can design an investment plan and asset allocation that’s suitable for You and your family.
6. Unexpected expenses.
While we can forecast many costs and expenses, unexpected costs and unexpected expenses do pop up now and again.
And these unexpected costs and unexpected expenses can throw a kink into the works, strain your personal budget and foul up your cash flow.
7. And my favorite other question – The $65,000 Question: What else could go wrong that could gum up the works?
I am an Optimist! But planning for the unexpected reduces risk and helps us sleep better at night.
A solid antidote for this is to build an emergency fund.
* * * * * * * * * * * *
This brings us back to the main point that it’s very important to get a realistic sense of your cost of living, your cost of lifestyle, your financial position, and your assets, liabilities, and net worth.
And how much money you have available to spend and cover your living expenses and how much more money you may need to accumulate to cover your lifetime cost of living and enjoy lifetime wealth.
It’s crucial to make a comprehensive personal budget and a comprehensive financial plan. And monitor your cash flow and financial position regularly.
And make adjustments along the way.
In Part 6, we’ll explore the 7 Fundamental Principles to Create Lifetime Wealth.
Let’s start thinking about wealth, prosperity and abundance and design a plan to help us get there. Right now!
See you next week.
Arthur V.
P.S. To Create More Free Cash, Save More Money on Groceries Every Day – click here.
To grab the other blog posts in this special Budget and Grow Rich® series, click here to see Part 1, Part 2, Part 3, Part 4 and Part 6.
Disclaimer: OH and Please Remember, we are Not attorneys or financial advisors and are Not providing any specific financial, tax or legal advice here. Be sure to consult your own professional advisors to get sound professional advice that’s specific to your financial and personal circumstances!
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