| Now that you’ve done a bit of consolidation and found all your ducks, or at least they are now all in one pond, let’s move onto the more exciting stuff. Vision and Mission Statement – the Wealth Version Okay, I lied, this isn’t exciting – it’s deeply personal and uncomfortable. I can hear half of you yawning already, especially if you’ve been involved in this process in a company where it is just fluff and meaningless marketing. I have deliberately made this the ‘wealth version’ – and as an evolving human you should have goals covering every aspect of your life (health, family, spirituality etc.), but the basic principles remain the same. Essentially ask yourself, what do I do, who do I do it for, and why does it matter. “Money”, “So I can stay alive” and “Because I don’t want to be homeless” are all valid, for now. A good mission statement is short, memorable, and actionable — not a word-salad that sounds like it was written by a committee or to please your spouse. Personally, I would keep it to myself (people can be ugly, especially if you’re actually succeeding). Personal plans can take years to unfold, why give someone else a stick to beat you with when it goes a little astray – the path to greatness is never a straight line. I know some pundits say you should tell other people so that you are made accountable, but quite frankly, nobody beats me up for failure more than myself. If you like that kind of thing, or find it useful, then go for it (or ask your LLM or old-fashioned Google what a masochist is.) The Mission Statement is now, a Vision Statement is long term but the principles remain the same – and the two should align. Vision – what you want to do, become, leave a legacy. Mission – how you’re going to achieve your vision. Now let’s get to the third step: Annual objectives – this is where you start to drill down to the action steps. |
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| Annual Objectives. These aren’t just for businesses; they are for everyone. They are probably just a fancy word for a New Year’s resolutions. When we are investing sums of money for our clients, we cannot even start the process without knowing the objective for the investment – because that usually dictates the timescale and the necessity for no capital erosion or level of volatility. When we wealth advisors know the objective, then we can pick assets to match that objective, rather than shoe-horning someone else’s ideas into your objective. When you’re doing a ‘annual personal plan’, setting those objectives, and specifically putting a monetary amount on them, starts to tighten your focus. This goes beyond the “SMART” goal setting (Specific, Measurable, Achievable, Relevant and Time-bound), I like to get very financially specific with my annual wealth objective. As a provisional taxpayer, I must keep a good track of my income by month, but this is a very good starting point for anyone. (I have a basic excel income statement as part of my (free) RedFile pack if you want one). |
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| Start with this year: 1. Start with the gross income (i.e. before tax and deductions) even it is just what you earned last year, with an inflationary increase, month by month. I use gross income, because even when you retire the income that you generate is going to be taxed in one way shape or form. (Did you think that SARS gave you a tax break on your retirement funds because they were being generous – no, they were just deferring that tax to later.) After age 65, theoretically, you get more tax breaks and allowances, and your consumption should have decreased – things like debt or parasitic progeny, bringing your average tax rate down. 2. Now we get to the deductions, and not all of them are consumption. This can be overwhelming, so start with the biggest headline items. Tax, Bonds, Debt, Medical Aid, ST Insurance, Life Insurance, School fees and then a big bucket for “Other” that you can refine later for example. Pension, Savings and Investment are a separate line items because they go straight into wealth. Don’t be sidetracked by the “Other” line item – rather get going with this and you can pick over that when you have the time or inclination. This is a process that most of my clients need to go through so that I can help them determine exactly what it is they are going to need to retire, and it often where we get stuck, which is why I just try and get a rough idea first, get some monthly numbers on both sides of the wealth equation. Long term ‘consumption’ is something that I am more interested in for a client’s long term financial and retirement plan, but we’re looking at 2026, so that consumption, multiplied by inflation will have to do for next year. (If you’re wondering how that ‘annual after retirement consumption’ number is so important, in the very broadest terms, if you divide that number by 0,045 -0,05 (no bigger) then you get the (very rough) ballpark of the capital amount, in today’s terms – called Present Value (PV) of the capital you are going to need to retire). I can then help plot a journey to help you get there. 3. By subtracting the one from the other (Income minus Consumption), you will have your Wealth for the year. You can even start with just subtracting your Wealth, i.e. retirement, savings and investments from your gross income. Now just do the same for next year. In the next post we’re going to get to the real annual planning – getting that ‘Wealth’ side of the equation by helping you take your heads out of the sand and deciding which of the two variables, income or consumption, you’re going to tackle. Remember, as much as you bug your wealth advisors to grow your wealth, obsess over returns and fees, those two variables are entirely up to you, and the two variables that can make the biggest difference to your long term wealth. Articles and Blogs: Medical Risk Mitigation NEW Next Year is going to be different – Consolidation NEW Abdication or diversification? Carbo-loading your retirement Spoiled for choice Who needs a plan anyway 8 questions you need to ask about retirement What to do when interest rates drop How to survive volatility in your investments What to do when interest rates drop Difficult Financial Conversations Financial Implications of Longevity Kick Start your own Retirement Plan You matter more than your kids – in retirement To catch a falling knife Income at retirement 2025 Budget Apportioning blame for your financial state Tempering fear and greed New Year’s resolutions over? Try a Wealth Bingo Card instead. Wills and Estate Planning (comprehensive 3 in one post) Pre-retirement – The make-or-break moments Some unconventional thoughts on wealth and risk management Wealth creation is a balancing act over time Wealth traps waiting for unsuspecting entrepreneurs Two Pot pension system demystified Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |