THE better we know our internal wiring, the better off we’ll be at long-term wealth building.

None of us wakes up each morning, praying: “Dear God, I wish to shrink, shrivel and sicken today!” All of us are wired by the Creator to yearn for expansion, growth and strength in our bodies, minds, souls and, if truth be told, in our bank accounts as well.

But there’s a price to pay for success; and an even higher price to pay — in terms of lost opportunities — for failure.

When each of us decides to manage our money well, either on a do-it-yourself (DIY) basis or by leveraging on the help of a paid professional, there’s a lot at stake. If we succeed, our families, possibly for generations to come, will benefit. If we fail, then outright impoverishment or at least a less than ideal quality of life ensues.

In terms of money management, we steward our personal finances most effectively when we harness a metaphoric dashboard comprising our cash flow statement and our net worth statement.

The cash flow statement comprises two parts: our sources of cash inflow and our targets for cash outflow. A healthy cash flow statement is marked by a total cash inflow, over each calendar month, say, that’s larger than the aggregated cash outflows.

In such a situation, a monthly cash flow surplus is generated. This unspent money will initially reside in your wallet, purse, piggy bank or bank account. Unsquandered, it morphs into an asset!

The other half of our personal finance dashboard, the net worth statement, also has two parts: our assets and our liabilities — what we own and what we owe.

Ideally, we should manage our affairs to ensure our assets exceed our liabilities. To prosper, we need to initiate a dynamic interplay between our cash flow statement and our net worth statement.

Harness the power

As we generate a monthly cash flow surplus, we should channel some of it into savings, investments and perhaps even into business or professional ventures listed in the asset column of our net worth statement. These should, in time, create rivulets of new income that further fatten our cash inflow.

If we don’t spend all the extra money, then our cash surplus grows. When that extra money flows into our asset column, specifically into more assets that generate more money, then even more cash FLOWS into the plus side of our cash flow statement!

This virtuous cycle creates compounding wealth for people who know how to harness its power. People like you.

Unfortunately, it’s often a lot of fun to spend money. In David Chilton’s 2011 book The Wealthy Barber Returns, he explains in simple terms a phenomenon we all experience each time we buy an expensive, flashy new ‘toy’:

“Those first few months of quality time with your latest indulgence are worth a lot of ‘joy units’. However, will you still be as excited when (it shows) its age?”

He elaborates: “The greater our exposure, the less we’re enthralled. That’s human nature. Repetition trumps wonderfulness — our possessions yield less pleasure each time we use them. Economists call this declining marginal utility. Psychologists call it habituation. Wives call it husbands.”

We already know this. After a long fast, we ravenously swallow any food in front of us. But after 20 minutes of such uninterrupted enthusiastic ingestion, we start to slow down as satiation sets in AND because the succulent delight we derive from each incremental morsel diminishes!

This isn’t just true of food. In a pricey shopping scenario, if we could just remember — before our expenditure — the inevitable drop in delight we will experience from expensive purchases, we might then retain more cash to build greater future wealth.

Price of prospering

That wise approach in containing our consumption-related expenses may be extended to the costs associated with our wealth building activities.

You should know the cost of each investment YOU buy and the fees you pay to professionals (like me) who aim to help you reach your financial dreams, goals and targets.

As super-investor Warren Buffett wrote in his latest annual letter to the shareholders of his company Berkshire Hathaway:

“Performance comes, performance goes. Fees never falter.”

That, by the way, is why I make it a point to tell those who wish to hire me as their financial planner the various cost components of my professional services and of the savings and investment products I plan to use to help them compound their wealth over decades.

I often encourage them to go and compare the prices of products and offered services. I even guide them on what they might ask other professionals. My aim in doing so isn’t to turn away viable business but to educate the public and to be certain the individuals I vet are well informed, and able and willing to pay fair, relevant charges to be accepted into my small practice.

People should know what they’re paying because, frankly, none of us has infinitely deep pockets. We only have a certain amount of money in total to spend today or to channel toward healthy compounding growth tomorrow.

We should, therefore, count our cost of living so we may afford the fair price of prospering.

© 2018 Rajen Devadason

Read his free articles at; he may be connected with on LinkedIn at, and Twitter @RajenDevadason

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