Evelyn Jacks: Affluence Is About Managing Cash Flow

What is wealth? Many people don’t think that "wealthy" describes them or their lifestyle, but to the outside world they may seem quite affluent. Wealth really is more about a state of mind than an actual number.

I like to think of it as that time in your lifecycle where you can say with absolute certainty, "we have enough. . .for today and the future too."

To get there, it’s important to understand how much you are worth today. Do a personal and a family net worth statement. You’d be amazed how few families actually take the time to do this, but it’s really important from a tax point of view in order to minimize the risk of tax erosion should something happen to you. 

Take the time now to value of all your assets and how much insurance you’ll need to pay the taxes on any unexpected tax liabilities. Do a will, health care plan and power-of-attorney review at the same time.

The truly wealthy achieve more for themselves and all the stakeholders around them because they take the time to know the numbers: their net worth, cash flow (before and after tax), and future needs. Three things to remember in planning: 

1. Include a Tax Filter. Measuring wealth “before tax” can over-exaggerate the true amount of financial capability when we need it. Talk to your tax professional about planning your after-tax income now.
2. Measure Active and Passive Income Often. If one of the primary purposes of wealth is to have enough financial resources to replace your actively earned income in the future, then we must plan to build passive income sources by acquiring “income producing capital”. Is your portfolio of investments designed to do that? An astute investment advisor can help structure a portfolio design that will.
3. Plan for Liquidity and Purchasing Power. Is money available in the future when needed? What will it be worth – after tax – when you need it? Plan sustainability of income by including both a tax and investment lens in your planning.

It’s Your Money. Your Life.  Leverage all your resources – time and money – to get the peace of mind you deserve in the future. That requires a deliberate process and, quite often, the help of tax and financial advisors. Secure your happiness and peace of mind working with the right people on the right plan.

Evelyn Jacks is president of Knowledge Bureau and author of 51 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of the 2014 three day think tank in Horseshoe Bay, Texas Nov 9-12 will be “Think BIG: Find the Sweet Spots in Wealth Management”  Follow Evelyn on Twitter at @EvelynJacks.