The Elements of Financial Health™

Elements® is a financial planning system designed to help people organize their financial information, objectively analyze their data, make smart decisions, and complete the jobs that lead to holistic financial health.

Financial Independence

Total term, which is the ratio of personal spending to net worth, is the primary indicator of financial strength. The higher your total term score, the closer you are to financial independence. Because wealth is relative, monthly personal spending is used to determine if your current net worth is healthy for your age and income. Every choice you make with your finances either increases or decreases your net worth, and consequently your total term score.

KEY INDICATOR
 Total Term
RELATED INDICATORS
  Business Term
  Real Estate Term
  Qualified Term
  Liquid Term

Debt

Deciding how you will use debt in your life is critical to your financial health. Too much or too little debt can restrict your cash flow and minimize your wealth-building options. The right approach to debt involves accurate tracking and a regular assessment of cash flow, loans, and the interest rate environment.

KEY INDICATOR
  Debt Rate
RELATED INDICATORS
  Savings Rate
  Total Term

Savings

Most people don't know if they're saving the right amount of money for their income level. The truth is your savings rate will vary based on your earnings, lifestyle decisions, debt reduction strategy, and retirement plan. Over time, as your income rises, your savings rate should go up too. But if you're not careful, your income will increase and your savings rate will decline, adding more uncertainty to your long-term financial health.

KEY INDICATOR
  Savings Rate
RELATED INDICATORS
  Burn Rate
  Liquid Term
  Total Term

Spending

Most people struggle to know how much they’re “allowed” to spend. They're either worried about overspending or too casual about their budget. Healthy spending doesn't always require detailed budgeting, but at a minimum, you should track what you spend over time. You know your spending is healthy when you’re saving enough for retirement and emergencies, while still being able to have fun. Spend too little and you risk missing out on your life today; spend too much and you’ll limit yourself in the future.

KEY INDICATOR
  Burn Rate
RELATED INDICATORS
  Savings Rate
  Total Term

Business

Creating and growing equity in a business is a primary wealth creation tool. It's important to monitor how much of your net worth is concentrated inside of your business and how that is changing over time. The way you choose to allocate your assets among liquidity, real estate equity, and retirement plans has significant implications on how you grow your company. You and your financial advisors can make smarter decisions when looking at the big picture, which includes the growth trajectory of your business.

KEY INDICATORS
  Business Term
  Profitability Rate
RELATED INDICATOR
  Total Term

Real Estate

Integrating real estate into your financial plan is an essential part of being comprehensive. Tracking details about each property, including equity growth, mortgages, and rental incomes is essential for your overall wealth strategy. Without a careful approach, your real estate assets can demand a disproportionate amount of your money, time and energy, and lead to an asset mix that is unbalanced and difficult to access.

KEY INDICATOR
  Real Estate Term
RELATED INDICATOR
  Total Term

Insurance

Protecting yourself and loved ones involves making smart insurance decisions. Insurance for life, disability, and liability all play critical roles in protecting your net worth and overall wealth. As your net worth and income change, you should also make regular adjustments to your coverage. Reduce coverage when it becomes unnecessary, or increase coverage when it's apparent you need more protection. One unexpected event has the potential to create an enormous financial burden.

KEY INDICATOR
  Insurance Rate
RELATED INDICATOR
  Total Term

Investments

Knowing if your investments are doing well, or if you have the right mix of investments for your goals, can be extremely difficult. Monitoring your mix of stocks and bonds, and how your investment holdings deviate from the overall market will help you understand if you’re on the right track. During both accumulation and liquidation phases of your life, you’ll need discipline and guidance to adjust your investment mix—account by account and goal by goal.

KEY INDICATOR
  Equity Rate
RELATED INDICATORS
  Qualified Term
  Total Term

Liquidity

Keeping adequate liquidity means always having enough money in the bank and/or after-tax accounts to weather the unexpected, or pursue the next stage of growth in your life. Without adequate liquidity, you’ll feel stressed about day-to-day decisions in your business and be unable to see the big opportunities in front of you.

KEY INDICATOR
  Liquid Term
RELATED INDICATORS
  Qualified Term
  Total Term

Estate

Estate planning can be confusing and hard to keep up with. Even with a good attorney involved, it’s likely you won’t remember everything you agreed to and decided. Taking time regularly to update and maintain your estate documentation can go a long way toward never missing any changes that you'd like to make as your circumstances evolve.

KEY INDICATOR
  Estate Completeness
RELATED INDICATORS
  Insurance Rate
  Total Term

Taxes

The higher your income and net worth, the more complex your tax planning becomes. Tax planning “surprises” can be an annual source of serious frustration, and often wipe out much of your discretionary income. Good tax planning includes monitoring the percentage of income you'll pay, and trying to defer and minimize that tax as much as possible while still following sound, legal guidelines. Left to chance, you’ll pay more than necessary and have less money to put toward saving, spending, and debt.

KEY INDICATOR
  Tax Rate
RELATED INDICATOR
  Total Term

Income

How much money have you earned since you've been working, and what do you have to show for it? Is your income growing or declining over time? And how much is going towards debt, spending, savings, or taxes? It's important to allocate the right percentage of your income to the right place so you can make the most of what you have.

KEY INDICATOR
  Lifetime Earnings
RELATED INDICATOR
  Total Term

Retirement Accounts

Selecting the right retirement plan for each year’s contributions is not easy. You may even change plan types regularly to maximize your opportunity for tax savings. Taking time to evaluate your retirement plan design and contribute the right amount to those plans is essential to lowering your tax rate and building predictable wealth over time.

KEY INDICATOR
  Qualified Term
RELATED INDICATORS
  Tax Rate
  Liquid Term
  Total Term