What is your net worth? How much do you have? Do you really know, or is it an educated guess?
Understanding the specific details of your wealth does not have to be a daunting process. You can break it down into manageable chunks – just by spending 30 minutes a day. We recommend you outsource as much of this work as possible to trusted advisors for efficiency and accuracy. Without an initial benchmark that shows what you have at your disposal now (and what is set aside for later), any planning you do for your future is guesswork. We’re talking about your health and happiness and the inheritance you will leave for others – do you want to leave that all to guesses?
First, you need an accurate picture of your financial snapshot. Create a balance sheet of assets (things you own) and liabilities (things you owe.) As you begin to assemble your financial picture, don’t get bogged down in minutiae. The point is to get a succinct understanding of all that you have now. It will be the foundation for you to plan, track, and modify your strategy for the future.
Next, define your nut. An essential step of wealth planning is to assure you’ll have enough to satisfy your needs and desires throughout your life expectancy. It’s called “securing your nut” – an official financial term from the squirrels. Start by defining how you want to spend your money throughout your life – this is called satiation spending. The nut is the amount that supports your satiation spending beyond your expected lifespan. It requires consideration of investment returns, changing personal circumstances, market fluctuations, and more. It is a calculation based on numerous assumptions – but helpful nonetheless. Nut calculations take your financial snapshot – where you stand now – and tell you whether you’ll have enough to satisfy your needs and wants.
Some inheritors we’ve worked with learned the need to curtail their current or risk running out during their lifetimes, others have scrimped, hidden their wealth, and lived like paupers, worrying that they would squander their family’s fortune. However, once they nailed down their financial snapshot and defined their nut, they began to relax and see the potential of their lives. You can do this, too – make an investment in yourself and find your own joy.
Life is out there waiting to be lived, and your wealth is awaiting your direction.
{Adapted from Living Richly: Seizing the Potential of Inherited Wealth, by Myra Salzer.}