7 tips to foster your financial peace of mind

Most people worry about a singular aspect of their financial future: “Will I have enough?” It seems to take a lot of money to “feel” like you do. We all want to achieve financial peace of mind, and a good way to start is by looking at our own individual definitions of “true wealth.” Here are seven ways to help you think about this. 

1. Have a strategy and a process for building wealth

It’s well known that when people focus on the “right stuff,” they can achieve the extraordinary.  That’s as true of building wealth as it is of reaching athletic or academic goals. Having a “wealth plan” that is comprehensive is important.  You will want to think about the concerns even multi-millionaires have about their future—things like long-term healthcare, or how to best support your offspring as they launch into adulthood.  Understanding those personal details, as well as the financial steps to plan for them, will help you be more purposeful about your financial future. In other words, take the time to do some life planning in conjunction with your financial planning.

2. Have financial principles to drive the “purpose” of wealth

People who have a wealth “purpose” go a step farther in their approach to financial planning.  They often develop financial principles; for example, they think about how they make their money (thereby better managing their time), and how they manage the money they make.  In fact, many go so far as to empower their personal work efforts by assigning specific purposes to their active income, their savings and their spending. They give each dollar a specific job, and a specific “home,” with the goal of making their money to work harder than they do, eventually. Along the way, they establish an acceptable cost of living, but not at the expense of their two precious resources: time and money.

3. Benchmark your Personal Net Worth (PNW)

Your PNW is the difference between the value of your assets and your liabilities. This document is your personal measure of success. Over your lifetime, measuring your PNW periodically becomes an accountable scorecard. It can be sobering exercise for some, but usually it’s an exhilarating one, as most people don’t know how wealthy they really are. Remember, net worth increases when you acquire new assets or reduce your debt; to that end, monitoring your net work is a check on your financial behaviours. Consider the short- and long-term implications: What would you like your PNW to be three years from now? Five years from now? Thirty years from now? As important, what is your “family net worth?” That makes a difference when making decisions about the right time to transfer assets, and into whose hands.

4. Understand tax efficiency

Wealth grows when you choose to spend less than you make and invest in assets that will appreciate in value relative to inflation, the cost of investing and one other key eroder of wealth: taxes. It is critical to understand the tax efficiency of your financial activities in order to interpret the net value of your true wealth at a particular point in time.  Tax efficiency is the process of taking advantage of tax rules to pay the least amount of taxes on income, in order to accumulate, grow and preserve the most after-tax wealth for the family over time.  What’s important is what you keep, after taxes, inflation and the cost of investing. Looking for tax efficiency in your investing activities will make every dollar work harder and faster for you and result in impressive gains that most people leave on the table.  Finding the right “tax home” for your savings will help you to prioritize how, when and where you save. In other words, when you get the tax right – both at the time of investing and the time of withdrawal – you supercharge your financial journey.  In fact, most people will arrive at “financial freedom day” twice as quickly as those who ignore their tax options.

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5. Work with a multi-disciplinary financial team

To get the right results, many heads are usually better than one. Even if you are the best and most consistent DIY investor in the world, it’s tough to get the entire financial journey right. There will be times when a variety of financial specialists can really help you accumulate, grow, transition or preserve wealth. This will likely include tax specialists (personal, corporate, trust or cross-border), investment and life or health risk management specialists and legal or business valuation experts, to name a few.

6. Be an investigator to build your confidence

There is no such thing as a stupid question about tax or finances. If you are going to be in charge of your personal wealth purpose, your key job is to probe and understand your financial affairs. For adults, key financial education mentors are required as different life events occur—births, deaths, marriages, divorces, job starts and stops, etc.  These important people must be prepared to explain terminology, concepts and strategies to you in a way that puts you at ease and allows you to understand how you will best execute on the financial choices you have to make. They will help you set your goals, keep you focused on them and provide real advice: technical expertise, experience, financial networks and viable options for you to consider that are specific to your financial objectives. They will also provide fee transparency and build cost efficiencies into your plans.

7. Invest in your financial relationships

Get involved, financially speaking. You’re going to have to know some hard facts about taxes and investing as you make decisions about your financial future.  As you work with your financial advisory team, you will accumulate your own technical expertise, experience, financial networks and wisdom about which financial options are best for you, including how much risk you are willing to take to get the financial returns you want. Investing in your financial networks will help you understand the pros and cons of decision-making about an often unpredictable future.

Evelyn Jacks is President of Knowledge Bureau and author of the 2019 edition of Essential Tax Facts, now available at knowledgebureau.com.  Follow her on twitter @evelynjacks.        

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MORE FROM EVELYN JACKS:

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• Family caregivers are missing out on help from the taxman
• These three people co-own a house. Who pays the tax on rental income?
• Capital gains tax rules on a house owned with siblings

About Evelyn Jacks, RWM, MFA, MFA-P, FDFS

Evelyn Jacks is the best-selling tax author of 55 books, an award-winning business leader and the Founder and President of Knowledge Bureau, an online financial education institute.

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