Our financial worlds have an endless amount of tunnels, roads, bridges and off ramps that we can take. It can be overwhelming for our clients navigating through all the information, opportunities and challenges. You may have heard the saying that “simple is not easy.” Over a couple of decades of providing financial advice and leading teams of Financial Advisors, I have worked consistently to distill our financial lives into manageable components.
The 4 Foundational Cornerstones of Financial Security and Prosperity
If a person came to me today and said, “Conor, what are the pillars that I need to have right to live a financially secure and prosperous life?” The following components would be the launching pad for such a discussion:
- Income
- Liquidity
- Tax Efficiency
- Loss (Leverage Our Secondary Strategy)
Aside from your physical health, family health, and spiritual health, these are the variables that I believe are paramount to your financial health.
Income: The Lifeline of Financial Health
Income drives everything, not just today, but for as long as you live. If you have scarcity of income or do not have a plan for income being here as long as you are, your financial health and wellbeing are likely going to struggle.
Liquidity: Protection and Opportunity
Liquidity lends itself to protection and taking advantage of opportunities when they present themselves. Historically, I have noticed that when people lose money in investments or business, there are often two things at play – overconfidence and a liquidity crisis. Ample liquidity helps buffer you when you have unexpected challenges and empowers you when you have unexpected opportunities.
Tax Efficiency: Minimizing Your Legal Obligation
Tax efficiency is all about paying only what you legally owe. As a disclaimer, I am not a CPA, I do not prepare taxes, but I understand very well the impact of taxes and the complexity of the U.S. tax code. Without a strategy, without accessing the available knowledge, it becomes very easy to inadvertently pay more than you otherwise should.
Loss: Leveraging Our Secondary Strategy & Turning Risks into Opportunities
To live this life, to be human, is to be faced with constant risk. Without risk, growth is rarely possible. Risk however is not the problem in my opinion, loss is the problem. What if there was a way to turn every loss into a win? I have created an acronym with the word LOSS – Leverage Our Secondary Strategy. What I mean by this is, for any given level of risk, we can quantify what a loss might look like. If we can quantify this, we can also develop a secondary strategy to take advantage of a loss and turn it into a win.
A very simple example of this would be your home burning down. I would expect most people would consider this a loss. After all, you now find yourself homeless. With that said, had you purchased home owners insurance, you may find yourself in a position to build a new and improved home. Most people would not choose to lose their home to a fire, but if you did, wouldn’t you want to turn that loss into a win? We call it a secondary strategy because winning would be the preferred outcome, but with any level of risk, losing is always present. It takes thought, it takes knowledge, it often takes outside resources to help you quantify what a loss looks like and develop an alternative strategy to turn that loss into a win.
Maximize Your Financial Pillars
If you are comfortable with these four pillars and have answers to how you can maximize each of these, you are likely feeling financially secure and prosperous. If you feel your pillars could be improved, we would be happy to have a conversation with you on how we might help.