29/03/2021
The Pyramid is an approach to managing our personal finances. The basic rule of the pyramid is to start from the bottom and move up, rather than attempting to address all aspects of it at once.
Wealth Foundation
At the base of the pyramid are financial plans that should in place no matter what, meaning we have to cover this first and have a strong foundation before we start growing our money. The purpose of the stage is to provide you with a cushion in case of an unexpected event such as job loss or health issues, if you do not have enough in emergency savings or insurance chances are that you will dig into your long-term savings which will undoubtedly jeopardize your long term goals.
Wealth Accumulation
This stage in your financial plan includes medium to long-term to Savings and Investments. Once you have your cash flow under control and the essential needs are covered, itโs time to shift to a higher gear in your financial plan.
Wealth Distribution
The final building block is wealth distribution. Youโll gift and spend the money you have earned. As well as plan your estate for future generations or charity upon your death. Since your net worth increased quite a bit since you first started the financial planning pyramid. It is important to plan this aspect because, depending on the country where you live, inheritance taxes and procedures can greatly reduce what's left of what you dedicated your life to build for your heirs.
Understanding the financial pyramid is an important part of financial planning, it is also a good way to visualize the importance of certain stages. If you climb the financial pyramid in the specific order and one level at a time you will have a solid financial plan and be able to weather short periods of financial hardship without jeopardizing long term goals.
If you'd like to learn more, message us for a FREE personal finance consultation. We'd be more than happy to help. ๐
