As some of you may know, I'm writing a book! And it's my hope that this book will help families to improve their Financial Planning so they can enjoy more freedom in life. While I'm writing the book, I thought it would be helpful to share some of the chapters with the world.
STEP 2 - FINANCIAL STRATEGIES (continued)
Following on from my last post where I shared with you the M&M Concept, it's now time to take a look at another important concept for improving your Financial Strategies.
The Financial Pyramid Concept
Now that you understand the importance of the M&M concept and how it underpins your Financial Strategies, the next thing to understand is what I refer to as the Financial Pyramid Concept. This concept links directly to the M&M concept because it is the philosophy I use when helping my clients to better MANAGE & MAXIMISE their money. It also outlines where each of the individual Financial Strategies fit within your Financial Planning journey.
Now you might be thinking, what does a pyramid have to do with money? Well, the pyramid is one of the world’s strongest structures. It represents stability and security. It is also often referred to as a metaphor for growth and progress due to the way it was constructed, one stone at a time. I think both of those representations beautifully link to the process of Financial Planning, when it is done right. I see the Financial Planning process as being similar to that of building your own pyramid. Just like building a pyramid, your Financial Planning is not something that can be done quickly. It will take time and require proper foundations to be laid. But if you do that and build upon your foundations, you will be rewarded for your patience and effort in the long run. That’s because your financial pyramid will provide you with long lasting financial security, just like the real pyramids did for the Egyptians, thousands of years ago.
Building your Financial Pyramid can be broken down into 3 stages, let’s take a closer look at each of these stages starting from the top which is the final stage once your pyramid has been built;
The Financial Freedom Stage
This is the final stage of your pyramid (also referred to as the Peak) and it’s the point at which your pyramid has successfully been built. By reaching this stage you will have greater financial security and freedom. This level of financial freedom will allow you to choose how you live your life and spend your time because you will have the financial structure and strength behind you to do so.
This stage often represents being debt free and/or having some form of passive income. From all my years of working with individual clients I’ve found that regardless of their different individual goals and values, reaching this stage of the financial pyramid is almost always necessary in order to give them the time and money necessary for them to achieve their goals and live in line with their values. To put it more simply, the long-term financial goal of building your own financial pyramid, will almost always allow you to achieve all your personal goals and values.
Now whilst everyone can benefit from building a financial pyramid, the difference between your pyramid and other people’s pyramids will be in how big you need to build it. Some people will need to build a much larger pyramid to afford their desired lifestyle and goals while others with less ambitious goals can afford to build a smaller pyramid to suit their specific situation. So, whilst the size of your pyramid will be different to others, the act of building a pyramid will be shared by you and many other families.
However, before you can reach the peak of your pyramid, you first need to build it and that’s where the Wealth Creation stage comes into play.
The Wealth Creation Stage
In order to reach the peak of your financial pyramid, you need to build your pyramid, one stone at a time. This is where improving your Saving Strategies comes into play. This is where you use some of your money today to build your financial security and freedom for the future.
Completing this stage will take some time (many years) and is where the majority of your pyramid building will take place. It is the only way you will reach the peak and get to a point where you are debt free and/or have passive income. And whilst this stage of building the pyramid may seem obvious (and exciting), many people try and fail at doing it. That’s because they usually skip a very important first step in the financial pyramid building process. Before you can build your pyramid (ie pay down debts and build up assets), you must first lay strong financial foundations from which you can build upon. And that brings us to...
The Financial Foundations Stage
The Financial Foundations stage is the bottom of the pyramid. It is the first stage and the most important part of the entire pyramid building process. Like any structure, a pyramid is only as strong as it’s foundations. So, in order to build a strong and stable financial pyramid it is key to get this right and not skip ahead.
If you don’t set solid foundations here, you will end up building ‘a house of cards’ rather than a strong pyramid. To build a solid foundation, you will need to improve your Spending Strategies and Safety Strategies. The important thing to remember here is that those strategies are your initial building blocks and will provide the structure and strength for all the stages above. Now whilst this stage may not sound as sexy or exciting as the above stages, it is the only way you can reach those stages in an efficient and effective way. The foundation stage is the basis of your entire pyramid. If you don’t get this right, you may never reach the peak. So, make sure you start at the bottom and set some strong foundations before moving to the next stage. By doing this, you will increase the chance of getting to the top of the pyramid and reduce the chance of having your pyramid come crashing down.
I really can’t stress how important this first stage is. The financial foundations stage is so crucial because without good Spending and Safety Strategies, you will not be able to create enough surplus to enjoy your life today and build wealth for the future, which is what the Wealth Creation stage is all about. I’ve seen too many people skip this first step and fail. They jump ahead and don’t get the proper foundations in place which eventually leads them into trouble in the future. They only focus on their Saving Strategies and ignore their Spending and Safety Strategies. This is the equivalent of taking 1 step forward and 2 steps back. That is actually another reason why I like to use this pyramid concept when it comes to Financial Planning. By thinking of your Financial Planning as a pyramid, you can better appreciate the need to have a strong and solid base to build from. Without a strong base, there is no pyramid.
And there you have it, that's the Financial Pyramid concept. Hopefully, that gives you a better idea of what you need to do with your Spending, Safety and Saving Strategies in order to better MANAGE and MAXIMISE your money in order to achieve greater levels of Financial Freedom.
In my next post, I'll be finishing up this series of blog posts with some chapters about Financial Behaviours.
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