THE WP-Letter Five: The Magic of Compound Interest +the Governance Section of an IPS + The Importance of Rituals

THE WEALTH PLAN

LETTER FIVE

Hello friend,

Here we are with the fourt letter of the Wealth Plan, which is designed to empower your financial journey!

Let's Dive in....

FINANCIAL LITERACY

Today we are going to tackle the first pillar of financial literacy : interest rates and the magic of compounding!

INTEREST RATES ARE THE PRICE OF MONEY

They can work towards your favor ( i.e a high yield savings account because you are essentially lending TO the bank) or they can be a cost (debt, mortgages because you are borrowing FROM the bank).
Interest rates go up and down, the Fed raised rates, The Fed descreased rates
They are expressed as a percentage and typically the interest rate that you receive from the bank is lower than the interest rate that you have to pay to the bank

COMPOUND INTEREST

COMPOUNDING has been defined as one of the “wonders” of the world and sort of a magic process. Because it can multiply your money exponentially
The MAGIC INGREDIENT here is TIME
Over one period ( be it a month, a quarter or a year) you get the simple interest rate on any sum of money you deposited. At the end of this period you have more than your initial deposit. If you keep the money invested you will then get the interest on the new augmented amount. Think about the yiest effect on bread dough or the effect of the snowball turning into an avalange

Watch my reel below to get some numbers'examples and share with a friend who is struggling to save to give them motivation and empowerment to start :)

WATCH MY REEL ON THE MAGIC OF COMPUNDING

2024-07-02_21_12_10-Financial_Education_with_Elisabetta_-Part_3_-_Presentazione

ADVANCED FINANCIAL PLANNING

Today I am sharing a little bit of information on the second section of the Investment Policy Statement (IPS), that is the "Governance"

This is another critical but sometimes neglected framework that sets a common purpose and a collective vision for the future of the family. Investment returns may constitute the most obvious manifestation of this purpose and vision, but a family’s governance structure determines the long-term achievement of these investment returns, thereby
increasing a family’s chances to beat the statistical odds that most of the wealth created by the family’s founder will be destroyed by the second or third generation.

What is important is to identify the actors and key responsibilities in the investing decision making process ( is it you, your spouse, anotether family member or an advisor?) as well as a
"standard of care" for those serving as advisors ( you want your advisors to
follow the “fiduciary duty” standard,which means they will always act in your
best interest)

Get my Investment Policy Statement Checklist and Framework here

BEYOND FINANCE

Have you ever wonder Why You Should Make Time for Oddball Rituals, like the famous tennis players who tie their shoes before playing Wimbledon?

Michael Norton's research, detailed in his book "The Ritual Effect: The Transformative Power of Our Everyday Actions," provides intriguing insights. Norton, a Harvard Business School professor, spent over a decade surveying thousands of people about the role of rituals in their lives. He found that rituals are more than mere habits; they are imbued with emotional significance and can unlock complex emotions, providing a sense of stability and identity. For instance, a mundane action like tying shoes becomes a powerful ritual for athletes, giving them confidence and emotional readiness for high-stress situations like Wimbledon. This emotional component distinguishes rituals from habits, making them powerful tools for managing emotions and enhancing performance.

Do you tie your shoes like Rafa? What is your ritual? I would love to hear :)

Past Newsletters

Letter One

Letter Two

Letter Three

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