Systematic Framework For The Creation Of Wealth

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.


As a Result…

•We have developed a mentality of instant
gratification
•Buy Now, Pay Later
•Many people have become dependant
on credit to satisfy their wants

This problem spans whole generations
Everywhere you look you can find people
struggling to pay the bills


How can you overcome this?

The Financial Fence® System
was created to help you achieve
FINANCIAL FREEDOM, Step by Step

INTRODUCTION TO THE FINANCIAL
FENCE®


The Financial Fence®
A New Way of Thinking
Way of Thinking


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.


The standard two rail fence

M M
I I
ACTIVITY
L L
E E
S S
ACTIVITY
T T
O O
N N
E E


C
A
P
CONSUMPTION RAIL I
T
A
L
ACCUMULATION RAIL F
U
N
D
I
N
G

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.



PERSONAL
CAPITAL

INVESTMENT
CAPITAL



THE FINANCIAL POST (MILESTONE)

Net Debt
•
– all items of an interest bearing nature
such as mortgages, home equity loans, bank overdraft,
lease & hire purchase outstanding, credit cards and cash.

Equity
•
– the difference between total capital and
debt which is a person’s net accumulated wealth.



PERSONAL
CAPITAL

INVESTMENT
CAPITAL

DEBT

EQUITY


The Financial Freedom Equation

YOUR
INCOME
TIME

Investment
EXPENSES
Income

SURPLUS
PERSONAL INVESTMENT
CAPITAL CAPITAL

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.


Consumption Rail
Income

Personal Investment
Income Income



Expenses
•
– all items of cost that have no residual financial
value. e.g. food, clothing, travel costs, tax.

Interest
•
– the cost of debt from the financial post usually
charged on a percentage basis.


Consumption Rail
Income minus Expenses

Expenses Interest



Net Income
•
– Total income minus expenses minus interest.


Consumption Rail
Net
Income minus Expenses equals
Income


THE BOTTOM FINANCIAL RAIL (ACTIVITY)

Net Income
•
– This is carried forward from the end of the top financial rail.


Net
Income
Accumulation Rail
Net
Income


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 selling
shares.

Accumulation Rail
Net Accumulation of
plus
Income Capital

Accumulation of Accumulation of
Personal Investment
Capital Capital


Net Cash Flow
•
– Net Income +/- accumulation in personal capital +/- accumulation
in investment capital.


Accumulation Rail
Net Net Cash
Accumulation of
plus equals
Income Capital Flow


THE FINANCIAL FENCE ®

PERSONAL
Consumption Rail PERSONAL
CAPITAL CAPITAL

Net
Income Expenses equals
minus
Income
INVESTMENT INVESTMENT
Accumulation Rail
CAPITAL CAPITAL

Net Net Cash
Accumulation of
plus equals
Income Capital Flow
DEBT DEBT

EQUITY EQUITY


The Financial Freedom Equation

YOUR
INCOME
TIME

EXPENSES

SURPLUS
PERSONAL INVESTMENT
CAPITAL CAPITAL

How The Financial Fence® locks together
BALANCE SHEET BALANCE SHEET
“AS AT” “AS AT”
NET INCOME STATEMENT
PERSONAL PERSONAL
“FOR THE PERIOD”
CAPITAL CAPITAL
INVEST
PERSONAL NET
EXPENSES INTEREST
MENT
INCOME INCOME
INCOME

CASH FLOW STATEMENT
CAPITAL CAPITAL
CHANGE IN CHANGE IN NET
NET
PERSONAL INVESTMENT CASH
INCOME
CAPITAL CAPITAL FLOW
DEBT DEBT

CONTROL CHECKS
EQUITY EQUITY
1. TOTAL CAPITAL = DEBT + EQUITY

PERSONAL PERSONAL
CAPITAL CAPITAL
INVEST
PERSONAL NET
EXPENSES INTEREST
MENT
INCOME INCOME
INCOME

CASH FLOW STATEMENT
CAPITAL CAPITAL
NET
INCOME
DEBT DEBT

CONTROL CHECKS
EQUITY EQUITY
2. OPENING EQUITY + NET INCOME = CLOSING EQUITY

PERSONAL PERSONAL
CAPITAL CAPITAL
INVEST
PERSONAL NET
EXPENSES INTEREST
MENT
INCOME INCOME
INCOME

CASH FLOW STATEMENT
CAPITAL CAPITAL
NET
INCOME
DEBT DEBT

CONTROL CHECKS
EQUITY EQUITY
2. OPENING EQUITY + NET INCOME = CLOSING EQUITY
3. OPENING DEBT + NET CASH FLOW = The Financial Fence Pty Ltd 2005
© Copyright CLOSING DEBT

Benefits of a systematic framework
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. © Copyright The Financial Fence Pty Ltd 2005

Contact us
Email: service@onesherpa.com
www.thefinancialfence.com
www.onesherpa.com

Systematic Framework For The Creation Of Wealth

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Systematic Framework For The Creation Of Wealth