FINANCIAL PLANNING
Applying the C+I+G+X formula to your financial life
In the financial planning process, we apply the concept of GDP to the household or business level. After all, a nation is simply a legal entity, just like a person, partnership, or corporation. Similarly, the combination of consumption, investment, government spending, and exports equals the wealth of an individual or business as well.
STEP 1
The first step in the financial planning process is to look at spending or consumption. Developing a budget is perhaps the simplest task, but implementing that budget and sticking to that budget are the most difficult parts of the process. This requires discipline and vigilance. Maintaining a budget is the single most determinant factor in achieving wealth.
STEP 2
The second step in the financial planning process is to look at investments. This process entails, developing and implementing an investment plan, or reviewing, monitoring, and adjusting an existing investment plan. Again, discipline in adhering to this plan will impact your ability to generate wealth.
STEP 3
The third step of the financial planning process is to analyze the taxes you pay to the government. Governments spend money generated from taxes. The goal is to not pay more taxes than legally required. Tax planning can help reduce your tax obligation and have a beneficial impact on your ability to achieve wealth.
STEP 4
The fourth step of the financial planning process looks at estate planning and wealth transfer. This transfer of wealth to successive generations would equate to a net export.
ECONOMICS AND YOUR WEALTH:
As we consider economics and wealth, certain considerations stand out.
First, wealth is certainly not achieved by consumption. Any consumable, by definition, loses some or all of its value at purchase. Consumption made possible by debt increases this loss of wealth. In financial planning, reducing consumption is not necessarily the goal.
We want to manage consumption by budgeting, managing cash flow, and reducing or eliminating debt. We want to ensure that we do not use debt to finance consumption.
Second, investments are historically a good way to attain wealth. Within the financial planning process, we seek to increase investment by improving cash flow and developing an investment plan that will assist in attaining financial goals.
These goals might include purchasing a home or second home, paying for college, saving for retirement, and increasing financial security by having additional sources of revenue. With these goals in mind, we attempt to develop an investment plan and strategy that we believe will best help meet your goals.
Third, governments use a variety of sources of revenue to pay for their expenditures. The primary revenue driver is taxes. The other ways of generating revenue include issuing and selling government bonds or printing money. In financial planning, we include tax planning as a way to enhance your chances of meeting your goals. Usually, a reduction in taxes is preferred. While government spending may or may not increase your wealth, taxation definitely will decrease your wealth.
Note: While we discuss the advantages of tax planning and offer tax advantaged investments, we do not offer tax preparatory planning, tax advice or tax compliance services. Please consult your tax advisor regarding the availability and benefits of tax-advantaged investment options. We strongly recommend the use of a tax attorney or certified public accountant. We are happy to communicate with these professionals as appropriate to assist you.
Finally, we look at exports. For financial planning purposes, we equate export with the transfer of assets, rather than goods and services, and to heirs or beneficiaries, instead of a foreign country. The principal applies, because transferring wealth to heirs is preferable to paying it in taxes, just as exports are a better increasing factor of GDP than government spending would be.
Effectively, we strive to decrease consumption and taxation, and attempt to increase investment and wealth transfer. Services to achieve this goal include, budgeting, retirement, college, and investment planning, insurance planning, tax planning, and estate planning.