What is “wealthcheck”?

What does financial independence look like, for you?

Our previous six Blog articles examined the rationale for each of the charts that comprise the “Personal Financial Dashboard”, a succinct graphical format we have developed to record a client’s progress and current position on some key indicators of personal financial independence.

Benchmarks to be achieved, or surpassed, are provided for each of the indicators. The Dashboard starkly reveals any gaps between where a client is currently positioned and each benchmark. It’s clear what needs to change to achieve financial independence and guides future financial planning action.

While there are no cast iron guarantees in finance, clients that sit at or above each of the benchmarks are considered to be in very good financial shape. They are well placed to cope with adverse financial market conditions and will further consolidate their position in the event of favourable conditions.

The Personal Financial Dashboard provides our clients with a very clear picture of what financial independence looks like, for them. But while many others may share the desirable goal of financial independence, their picture of what it means is either non-existent or fuzzy, at best. As a result, there is simply no basis to assess how well they are currently positioned and what changes need to be made.

There are a number of typical responses to this dilemma. You may attempt a do-it-yourself solution, but need to be reasonably numerate, financially literate and really want to do it. Or, you could go to a financial planner. But how do you choose a good one and know you’re getting value for money?

Or, like most people, you could compare your financial behaviours and apparent progress with friends and others that you judge are a lot like you. If you’re all doing similar things, then surely you’re all on the path to financial independence. Or, perhaps, you’re all heading over the same financial cliff.

“wealthcheck” is a personal finance health check

Wealth Foundations’ mission is to help people make better financial choices. However, our decision to primarily provide comprehensive personal financial advice together with the associated onerous regulatory requirements have restricted our ability to cost effectively assist a wider audience.

But with the refinement of the Personal Financial Dashboard “technology” over the past three years, we can now offer a quick but comprehensive way for you to gauge where you are on the road to your financial independence and the direction you need to go to reach your destination.

We are calling the service “wealthcheck“. We’re offering it to family and friends of existing Wealth Foundations’ connections and to those who feel our comprehensive service may be what they need but wish to better understand their current position before making a decision to proceed.

“wealthcheck” is the personal finance equivalent of a medical check-up with your doctor or a physical at the local gym. It’s for people who want to know where they stand, financially. But they don’t feel comfortable self assessing and realise that their friends’ financial behaviours aren’t likely to be a good guide for them.

Based on some high level personal financial information provided by you, a “wealthcheck” report:

• • gives an estimate of spending that both current and projected investment wealth could support indefinitely; and

• • compares your readings on the key indicators of financial independence that comprise the Personal Financial Dashboard.

These key indicators:

• • Your Investment Wealth Ratio;

• • Your Retirement Expenditure Multiple;

• • Your Tax Effectiveness Ratio;

• • Your Growth Asset Allocation; and

• • Your Diversification Ratio

could be compared with the blood pressure readings or pulse rates taken by your doctor. The benchmarks are targets for these indicators that you need to meet or exceed for financial independence.

The key pages of a sample report for a fictional Mr Fred Smith are shown below. The first illustrates the financial information required to generate the report’s outputs:

The “Summary observations” page of the report (see below) suggests that, based on the above inputs, Mr Smith’s retirement (or financial independence) spending expectations are unlikely to be met:

The “Key measures” page shows Mr Smith’s readings on the key financial indicators and a comparison with the relevant benchmark. Depending on this comparison, an appropriate comment is automatically generated:

While the “wealthcheck” service:

• • explains the rationale for each of the financial indicators; and

• • indicates where action is potentially required, based on the variance between current measures and benchmarks

it doesn’t extend to suggesting how identified gaps should be closed. This is the domain of a personalised financial advice service.

The report’s outputs rely totally on the inputs provided by the client. This is necessary to ensure that the service does not fall under the “personal financial advice” umbrella, with its onerous and costly regulatory requirements.

“wealthcheck” reveals what needs to change

While a medical check revealing a blood pressure reading of a high 190/110 may be an unpleasant experience, choosing to remain “blissfully ignorant” of such a problem is unlikely to be consistent with a healthy lifestyle. As a parallel in the personal financial sphere, a healthy financial lifestyle is unlikely to be achieved without a knowledge of where you currently sit on the key indicators of financial independence as measured by “wealthcheck“.

“wealthcheck” isn’t a substitute for comprehensive financial planning. But it is a cost effective way to obtain an understanding of your current financial health. As for the medical analogy, the results may or may not be what you want to hear but should provide some unequivocal guidance regarding changes that need to be made.