If I asked you what is the biggest measure of Safety for your typical client, what would you say? Is Cash Flow the answer and truly the biggest measure of Safety?
The past two months I have written about onboarding new clients and EPR? in order to get a closer look at helping your client achieve clarity and specifically clarity around where to put their extra cash flow each month. Vitally important numbers for sure but let?s back up one step to discuss cash flow.
In my book, ?Borrow Smart, Repay Smart? I go into the concept of quantifying the cost of borrowing and how it affects the many facets of your client?s life. Do your clients use extra cash flow to save mortgage interest and prepay their mortgage or use it to invest and have their wealth appreciate outside the home? This is a cash flow question and at the heart of each of your client?s financial decisions.
Let?s take a quick look at equity inside the house. Equity does not earn a rate of return, appreciation acts independently from equity since appreciation is driven by market forces of real estate.
Wealth inside the house reduces the amount of interest you pay and that is where EPR? is important. Do you ask your client what is important to them about prepaying their mortgage? Do you analyze the cause and effect of doing that?
This is the time I use our Borrow Smart? software to show what happens when you locate your wealth inside or outside the home. I have included a sample analysis to show what I deliver to my clients when discussing this.
In the analysis, you will see the section called ?Future Wealth Comparison?. See what happens when the client invests the payment difference from his old mortgage and the new lower mortgage. Over 26 years this couple would build an account of $356k without increasing their monthly cash flow. To me, that is SAFETY!