Midlife Crisis Creates Opportunity

From Prospera Chartered Accountants |

CPA Firm Calgary Alberta

Midlife Crisis Creates Opportunity

Ken and his wife Tracy (both approaching 40 fast) came to Prospera to discuss financial planning and their desire to appease their mid life crisis by buying their hearts desire, a convertible BMW, price tag $80,000.

Tracy is a health care worker making $60,000 and Ken is self employed building a business that is already producing over $100,000 personal cash flow and promises to grow quickly.

We discussed the Millionaire Program and they shared that they would like to retire at 55 to travel and give back to the community in other ways than working. They agreed that a ten-year plan to create a million dollars in net wealth was a achievable but necessary goal if they wanted to attain their future goals.

We sketched out their current net worth to establish a starting point and help us to decide on the strategy to pursue. Short answer – disaster. Although recently having bought a new home and enjoying a comfortable lifestyle, they were shocked to discover that they had a negative net worth of $8,000. Once they factored in their entire consumer, tax and credit card debt they owed more than they owned. Is this unusual? Unfortunately this scenario is all too common. Many baby boomers have sacrificed savings for lifestyle. Prospera does not preach abstinence in financial spending. Balance is the key to all parts of your financial planning. Yes, you can go on vacation and build your dream home, but be aware what you have to do to balance that to allow for constant saving for the future.

For Ken, we were able to identify a four-part strategy to allow Ken and Tracy to hit 50 as millionaires. 

  1. Pay off all high interest consumer debt
  2. Pay off the mortgage aggressively, to be debt free in ten years and own an asset worth $350,000 Build the business to be more than a cash cow for its owner. I.e. Follow Michael Gerber’s advice in his book “ E Myth Revisited” and create a business, which is saleable and capable of being run by others. Maximizing the value of a business is one of the areas most often neglected by entrepreneurs and something we at Prospera are dedicated to helping our clients achieve. (Business worth in ten years $500,000)
  3. Create excess cash flow in the company, pay tax at 18% on this money and invest it in a balanced portfolio. ($150,000)

We have created a workable, concrete plan. Ken is so excited about building his net worth he is tracking his progress monthly and calls us often to update us on progress. 

Prospera has recognized that the key to success in this planning is to:

  1. Create a long term plan with achievable goals
  2. Establish a starting point from which to build
  3. Have easy to understand short term goals that give a sense of accomplishment
  4. Monitor the plan at regular intervals
  5. Coordinate the plan with all the clients advisers to ensure we are all on the same wavelength.

Did Ken and Tracy get their BMW? When asked if the purchase would help them achieve their long-term goal they decided it did not. The bought a Seebring instead!