systematic framework for the creation of wealth
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Many people are quite ad hoc and haphazard in their wealth creation. Take a look at a very systematic yet simple way to go about being more successful in your financesTRANSCRIPT
© Copyright The Financial Fence Pty Ltd 2005
A SYSTEMATIC FRAMEWORK FOR THE CREATION OF WEALTH
© Copyright The Financial Fence Pty Ltd 2005
The Truth Is:
One of the biggest issues facing the western world is lack of financial literacy.
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•We have developed a mentality of instant gratification
•Buy Now, Pay Later
•Many people have become dependanton credit to satisfy their wants
As a Result…
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Everywhere you look you can find people struggling to pay the bills
This problem spans whole generations
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How can you overcome this?
The Financial Fence® Systemwas created to help you achieve FINANCIAL FREEDOM, Step by Step
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INTRODUCTION TO THE FINANCIAL FENCE®
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A New Way of ThinkingThe Financial Fence®Way of Thinking
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Why we use a fence?
1. Fences are made of two parts :A. Posts that anchor the fence into the ground at a point AND B. Rails that carry the fence over a distance.
2. Fences incorporate Milestones (Posts) and Activity (Rails) in the same analogy.
3. Financial statements have these two parts :A. “Milestones” - Balance Sheet. B. “Activity” – Income Statement & Cash Flow Statement.
4. Fences provide a boundary and security.
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The standard two rail fence
MILESTONE
MILESTONE
ACTIVITY
ACTIVITY
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The standard two rail fence
CONSUMPTION RAIL
ACCUMULATION RAIL
CAPITAL
FUNDING
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Definitions of terms used in The Financial Fence®
THE FINANCIAL POST (MILESTONE)
• Personal Capital– Family Home, Cars, Boats, Furniture.
• Investment Capital– Capital which produces income such as Rental property, shares, superannuation or a business.
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The standard two rail fence
INVESTMENTCAPITAL
PERSONALCAPITAL
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Definitions of terms used in The Financial Fence®
THE FINANCIAL POST (MILESTONE)
• Net Debt– all items of an interest bearing naturesuch as mortgages, home equity loans, bank overdraft,lease & hire purchase outstanding, credit cards and cash.
• Equity– the difference between total capital anddebt which is a person’s net accumulated wealth.
© Copyright The Financial Fence Pty Ltd 2005
The standard two rail fence
EQUITY
DEBT
INVESTMENTCAPITAL
PERSONALCAPITAL
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The standard two rail fence
EQUITY
DEBT
INVESTMENTCAPITAL
PERSONALCAPITAL
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The Financial Freedom Equation
SURPLUS
INCOME
EXPENSES
INVESTMENT CAPITAL
PERSONAL CAPITAL
YOURTIME
InvestmentIncome
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Definitions of terms used in The Financial Fence®
THE TOP FINANCIAL RAIL (ACTIVITY)
• Personal Income– Income gained from exchanging your personal time for money. e.g. wages and salary.
• Investment Income– Income gained from your Investment Capital. e.g. Profits on a business, rental on property, dividends on shares.
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Consumption Rail
Income
PersonalIncome
InvestmentIncome
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Definitions of terms used in The Financial Fence®
THE TOP FINANCIAL RAIL (ACTIVITY)
• Expenses– all items of cost that have no residual financialvalue. e.g. food, clothing, travel costs, tax.
• Interest – the cost of debt from the financial post usuallycharged on a percentage basis.
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Consumption Rail
ExpensesIncome minus
Expenses Interest
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Definitions of terms used in The Financial Fence®
THE TOP FINANCIAL RAIL (ACTIVITY)
• Net Income– Total income minus expenses minus interest.
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Consumption RailNet
IncomeExpensesIncome minus equals
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Definitions of terms used in The Financial Fence®
THE BOTTOM FINANCIAL RAIL (ACTIVITY)
• Net Income– This is carried forward from the end of the top financial rail.
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Accumulation RailNet
Income
NetIncome
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Definitions of terms used in The Financial Fence®
THE BOTTOM FINANCIAL RAIL (ACTIVITY)
• Accumulation of Personal Capital– Positive or negative movements of personal capital items. For an item to be capital it must have some residual financial value at the end of a period. e.g. Renovations to the Family Home, Buying or selling of Motor Vehicles.
• Accumulation of Investment Capital– Positive or negative movements of investment capital items. e.g. investing in a business, buying a rental property, buying or sellingshares.
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Accumulation RailNet
IncomeAccumulation of
Capitalplus
Accumulation of Personal Capital
Accumulation of Investment
Capital
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Definitions of terms used in The Financial Fence®
THE BOTTOM FINANCIAL RAIL (ACTIVITY)
• Net Cash Flow– Net Income +/- accumulation in personal capital +/- accumulation in investment capital.
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Accumulation RailNet
IncomeAccumulation of
CapitalNet Cash
Flowplus equals
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THE FINANCIAL FENCE ®
EQUITY
DEBT
INVESTMENTCAPITAL
PERSONALCAPITALConsumption Rail
Accumulation Rail
NetIncomeExpensesIncome minus equals
NetIncome
Accumulation of Capital
Net CashFlow
plus equals
EQUITY
DEBT
INVESTMENTCAPITAL
PERSONALCAPITAL
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The Financial Freedom Equation
SURPLUS
INCOME
EXPENSES
INVESTMENT CAPITAL
PERSONAL CAPITAL
YOURTIME
© Copyright The Financial Fence Pty Ltd 2005
EQUITY
DEBT
EQUITY
DEBT
INVESTMENTCAPITAL
PERSONALINCOME
PERSONALCAPITAL
NETINCOME
INVESTMENT
INCOMEEXPENSES INTEREST
NETINCOME
INVESTMENTCAPITAL
PERSONALCAPITAL
CHANGE INPERSONAL
CAPITAL
CHANGE ININVESTMENT
CAPITAL
NETCASHFLOW
BALANCE SHEET“AS AT”
BALANCE SHEET“AS AT”
NET INCOME STATEMENT“FOR THE PERIOD”
CASH FLOW STATEMENT“FOR THE PERIOD”
THE FINANCIAL FENCE ®
CONTROL CHECKS1. TOTAL CAPITAL = DEBT + EQUITY
How The Financial Fence® locks together
© Copyright The Financial Fence Pty Ltd 2005
EQUITY
DEBT
EQUITY
DEBT
INVESTMENTCAPITAL
PERSONALINCOME
PERSONALCAPITAL
NETINCOME
INVESTMENT
INCOMEEXPENSES INTEREST
NETINCOME
INVESTMENTCAPITAL
PERSONALCAPITAL
CHANGE INPERSONAL
CAPITAL
CHANGE ININVESTMENT
CAPITAL
NETCASHFLOW
BALANCE SHEET“AS AT”
BALANCE SHEET“AS AT”
NET INCOME STATEMENT“FOR THE PERIOD”
CASH FLOW STATEMENT“FOR THE PERIOD”
THE FINANCIAL FENCE ®
CONTROL CHECKS1. TOTAL CAPITAL = DEBT + EQUITY2. OPENING EQUITY + NET INCOME = CLOSING EQUITY
How The Financial Fence® locks together
© Copyright The Financial Fence Pty Ltd 2005
EQUITY
DEBT
EQUITY
DEBT
INVESTMENTCAPITAL
PERSONALINCOME
PERSONALCAPITAL
NETINCOME
INVESTMENT
INCOMEEXPENSES INTEREST
NETINCOME
INVESTMENTCAPITAL
PERSONALCAPITAL
CHANGE INPERSONAL
CAPITAL
CHANGE ININVESTMENT
CAPITAL
NETCASHFLOW
BALANCE SHEET“AS AT”
BALANCE SHEET“AS AT”
NET INCOME STATEMENT“FOR THE PERIOD”
CASH FLOW STATEMENT“FOR THE PERIOD”
THE FINANCIAL FENCE ®
CONTROL CHECKS1. TOTAL CAPITAL = DEBT + EQUITY2. OPENING EQUITY + NET INCOME = CLOSING EQUITY3. OPENING DEBT + NET CASH FLOW = CLOSING DEBT
How The Financial Fence® locks together
© Copyright The Financial Fence Pty Ltd 2005
The Financial Fence® helps you to:
•Make decisions in context•Make better decisions which leads to better financial results•See how all the pieces of your financial world fit together•See that not all payments are equal•See how you can use leverage to work for you rather than against you.
Benefits of a systematic framework
© Copyright The Financial Fence Pty Ltd 2005
Contact usEmail: [email protected]
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