The Haddam Road Model: A practical approach mapping the interaction of Net Cash Flow (your life as a movie) and Net Worth (your life in a series of portraits).
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Using the model above, we can examine the implications of any financial decision.
The two main questions we discuss with every client are:
- How do we get more money to FLOW (i.e. increase income potentially producing more assets)? This is the basis for Financial Planning.
- How much are you willing to let these assets FLUCTUATE over time giving them the opportunity to grow? This is the key to Portfolio Management.
We start by taking a look at the top section, where money flows in and out. We examine all sources of money coming into your life — salary, dividends and interest, windfalls - fund flows you can and can’t control. This is your income. Then, we look at expenses, or outflows. This is your lifestyle, which you entirely control.
What’s left is your Net Cash Flow. This number is truly fluid, it changes day to day (sometimes minute to minute). The idea behind this focus is to have a sense of how your money 'works' so when something changes, it’s not as disruptive.
We then look at the bottom section, your assets and liabilities. The Net Cash you have generated from the top section becomes one component of your assets — or what you own — along with your savings, investments, home, car, pensions, etc.. Your 'surplus' is the balance between your assets what you owe; or your Net Worth. This balance fluctuates over time.
Every financial decision you make impacts the dynamic in this model, it’s not good or bad — there’s no judgement here. This is a way to look at the immediate and the future implications of every financial decision.
Let's start the conversation.
