This post was originally published on this site.
00:00 Speaker A
We work primarily with modern families of all shapes and sizes, kind of in the 30s, 40s and 50s. So they’re typically earning good incomes, they’re at the height of their earning potential. But what we say is like the number one principle, it doesn’t matter whether you’re earning a million dollars or 100,000 or or less, is it’s all about cash flow. So how much are you bringing in and where is it going out? And um, so that’s, I would say strategy number one is just knowing where your money goes. Um, and
00:39 Speaker B
most people know how much they’re bringing in, they can tell you how much your salary is and most people do not know how much is going out.
00:50 Speaker A
Um, and the ratio we love to focus on is, um, I mean, you can call it many things, uh, we call it the financial independence ratio, but it’s essentially how much um, liquid net worth you have. So that means all of your money minus your house, um, is over, uh that’s the numerator. The denominator is what your uh annual expenses are. and that just tells you how many years that your money could cover you. Um, and so that’s often a aha moment for folks because they might be earning lots of money, but they haven’t actually built that much wealth or the opposite. They actually don’t have that much money and feel poor because of their income, but actually they have a lot of assets. Um, so that’s one principle. Um, I think the second principle that we work with clients, um,
01:52 Speaker A
is actually around tax planning. So we all say taxes are if you’re thinking about um again, we’re working typically with high earners in the Bay area, uh San Francisco Bay area, taxes are your biggest expense, um, over your lifetime for most people. And so being and most people many people are like, well, it is what it is. And that’s true and we’re not trying to avoid taxes. taxes are important. uh but the our goal is to help folks, um, reduce their lifetime tax uh burden and to be able to realize those tax savings, right?
02:35 Speaker A
Um, and I guess, yeah.
02:37 Speaker B
Well, I think maybe the third would be your, um, your saving ratio. So that’s also, I think as, you know, people have been told different stories throughout their lifetime, you know, you save 10%. But for some people, you know, they they might not understand the trade-offs of like, if you save a higher percentage of your income, maybe what’s the trade-off in terms of you mentioned like an earlier financial independence point. And so, um, you know, just educating people about their savings ratio is is also probably another aha moment. Um, and people can kind of then figure out if the trade-off is worth it for them to try to save more to accelerate their their independence earlier.