From Action to Measurement

In last month’s newsletter ( available from our website ), we outlined two key steps needed to take your Money Plan and put it into action – getting your existing money working as hard as possible for you, and taking control of your spending. These two steps can be achieved by implementing the Account Structures and cash flow strategies that form part of Empower Wealth’s Personal Wealth Management Program.

Once you have your Account Structures and cash flows set up and working for you on a day-to-day basis, the next question that comes to mind is “How am I going?”. Measurement of progress is vital to the success of any endeavour, as without some measure of how well things are tracking to plan, there is no way of knowing whether the end goal is going to be achieved, nor of taking some form of corrective action if things have gone off track. To go back to an example used in an earlier article, can you imagine how you would feel if you were building a house but had no way of telling whether it was running on time or on budget?

An ongoing measurement of progress not only allows you to see if you’re falling behind, signalling the need for some corrective action, it also allows you to see if you’re doing better than expected, which may alert you to the opportunity to take advantage of the better than expected result. For example, in a Wealth Creation Strategy based on Property Investment, a better than expected outcome may give you the opportunity to buy a property earlier than planned, opening the potential to build greater wealth in the long term.

So, what would be an appropriate measurement to tell how well you are tracking to your Wealth Creation Plans and Goals?

You might think that the obvious answer is to measure your Net Wealth at regular intervals and see how it has changed. Unfortunately, this can be deceptive, as the path mapped out in a Money Plan will not necessarily see wealth increasing in a straight line. For example, the same logic might suggest that a mountain climber could measure their progress by their altitude, but it is clear that getting to the top of a mountain rarely involves a straight line – there are times when simply measuring altitude would indicate our climber is not making any progress for periods of time, or even going backwards.

So a true measure of progress would need to involve knowing where you are at a point in time, compared to where you expected to be at that time. In mountain climbing, this means measuring distance, rather than altitude; in Money Planning, it is cash flow, rather than wealth that you need to focus on. By monitoring cash flow at regular intervals, you can get an immediate indication of where you are.

But to know whether you are on track, getting ahead or falling behind, you also need to know where you expected to be at that time.

If you have previously mapped out your expected Income and Spending, and determined your expected surplus cash flow over a period of time, you will have developed a profile of your expected cash  flow surplus over the course of your Wealth Creation Strategy, and your current situation can be compared against where you were planning to be, to give you the immediate feedback required to monitor your progress.

Empower Wealth’s Personal Wealth Management Program includes tools to build a profile of expected cash flow surplus over time, recommended Account Structures and money management techniques to simplify the process of measuring progress to date, and reporting systems to provide concise and timely feedback.

If you would be interested in seeing how these tools and techniques could be applied to your own personal financial situation, please come and see us for a free one hour consultation by registering at https://ewwebsiteprod.wpengine.com or just give us a call.