Core Concept 2 - Total wealth picture

In this week's core concept, we'll look at the foundation for your wealth management plan. This is based on a getting a complete picture of your current wealth position. All your investment decisions should be based on this.

As I mentioned last time, you need to make a full list of all your assets. This includes all the usual financial pieces (savings, brokerage account, 401ks), any property you own, and other major assets (e.g. a car). And don't forget to add your own human capital (your skills, experience, current job).

Then scribble down your major commitments. For most people this will revolve on loans (mortgage, college tuition, credit cards). Add in any major expenses you are planning over the next ten years (such things as college fees, for example).

There are two principles when planning out future expenses. First, if you can pay down as much debt as you can. Second, always pocket a small amount each month for an emergency fund to cover the unexpected (e.g. additional medical costs). Life can throw lots of curve balls, so having some cash to tide things over is no bad thing.

Putting these two things together will help you understand how much "liquid" assets you will need at various points in time. It should also help you rationalise what is "necessary" versus "nice to have" spending. Be ruthless - there are always more things we'd like. Stick to the essentials - if things turn out better than planned, that's a bonus.

The end result of these lists is the raw material to start steering your investment decisions to meet these future needs. This will involve planning what investment strategy makes sense for each major "purchase" you need to fund. We'll walk through this in more detail in the next core concept.