When I recently chatted with a very wealthy entrepreneur worth between $50 million to $75 million, I was curious about his main financial concern. Surprisingly, it wasn’t about imparting financial wisdom to his children or leaving a legacy but ensuring he had enough cash flow to support his lifestyle. This made me realize that even for the wealthy, managing cash flow is crucial since much of their net worth might be tied up in investments that aren’t readily accessible, and thus, they can’t simply liquidate assets whenever they need cash.
Many high net worth individuals have a significant amount of their wealth in non-liquid assets like business equity, which can lose value during economic downturns. This vulnerability is why the concept of maintaining cash flow is so appealing. It’s not just about sustaining a lifestyle but about security and readiness for financial downturns, as demonstrated by historical cases where wealthy individuals faced financial ruin due to poor cash management.
On a personal note, while the stock market’s fluctuations don’t impact me as much, I keenly follow the bond market, especially the 10-year bond yield, to find opportunities to refinance my mortgage. For example, refinancing a mortgage from a 2.625% rate to 2.25% on a $1 million loan could save me about $3,750 annually, which is quite significant.
Furthermore, the current volatility in the bond market influenced by global events like tensions in Russia and shifts in the European and oil markets, underscores the importance of staying informed. I even discuss potential refinance rates with bankers to keep them on their toes about getting me the best deal, saving me the hassle of constant market watching.
Another challenge I face is qualifying for refinancing due to variable income as an independent contractor. I’ve strategically managed my income to lower my tax bracket, balancing tax liabilities with income reporting to meet bank standards for loan approval.
The broader lesson here is the importance of managing what we can control and making peace with what we can’t. Whether it’s our mindset, work ethic, or financial decisions like managing debts and investments, each aspect plays a role in overall financial health.
I also emphasize other strategies for managing finances, such as negotiating lower interest rates on credit cards, exploring new opportunities for savings on recurring expenses, and being proactive about investment income through avenues like real estate or dividend stocks.
In summary, effectively tracking and managing your money not only preserves but can enhance your financial independence. It’s not about having enormous wealth but ensuring you can maintain and control your financial future, regardless of external economic conditions.
