We all want to be financially free unfortunately very few of us ever get there. One of the most important steps to secure, maintain and improve financial independence is to manage your finances. I know it sounds a little silly but, most people find simply managing their money one of the most difficult things they have ever done.

Your wealth encompasses many factors such as immovable properties, bank balances, luxury gadgets, cars, time shares, just to list a few. All of this comes under the umbrella of "Wealth" can is acquired by placing yourself in "Debt". While some types of debt is good, most will undermine your financial stability. Loan companies and credit card agencies present a glorious picture offering many types of loans and credit but all have the same goal: to extract the maximum from the debtor.

Financial advisors, gurus and consultants thrive in plenty, all telling us to save regularly, live frugally, use less credit, economize on food, cut down on entertainment and so on. At the end, one is so confused and frustrated that he/she just throws away all advice and continues to drown in seemingly eternal financial crunches- more debt, less to spend and eventually financial ruin.

The Success Formula:
If you want to transit from the world of financial worries (debts, loans, forced frugality) to wealth and happiness, the practical way is total wealth management or TWM. Just as in other disciplines, industry, and business, the shift has been to TQM and TPM, and so on, - here the focus is on total cost and not on segmental cost which could vary from very low to very high. What is required is a balance between earning, spending and saving, all at optimum cost.

This delicate art of balancing could be termed as total wealth management or TWM. One learns to manage his/her wealth in the same way Quality and Maintenance is being addressed in other walks of life. The whole picture of personal finance is attended to in the most effective way, by using the same time-tested methods that were/are successful in TQM and TPM.

The Practical Way to TWM:
Every aspect of our personal finances and related subjects is studied and each is made to function with the total end result in mind. Now let us see what items fall within this scrutiny. Regular household purchases, investment in long-term and short-term funds, loans, repayments, credit facilities, strategic buys, banking accounts, holiday expenses, insurance, work, and retirement are some of the aspects and could include many more.

Every time there is a need to decide on any item, one has to ask two questions.

1. Is this decision going to result in increase to my net wealth?

2. Is there any way to achieve a net increase, even if there is a temporary decline/decrease?
Instead of an elaborate explanation on the how of TWM and the when, we will see an example of a case study.

The How:
Take the example of Max a sales engineer by profession, and what he does. He has an 8-year-old Pontiac, which he drives to work, as his job requires extensive traveling.
Max has completed his monthly purchases and payments towards rent, utility bills, insurance, and has $1200 left over from his paycheck amount. Now he has to decide from the following

- Pay $600 towards his credit card dues
- Pay $400 for a holiday plan for his wife and himself on the next week-end
- Buy his long cherished dream car with another car loan of $24000, repayable in 60 months with an EMI of $560, and an initial payment of $500.

Apply TWM:
- Skip the credit card payment, and incur a penalty of $49.00.
- Postpone the holiday plan.
- Go ahead with the new car buy with a swap arrangement.

This may appear unsound by most finance advisors' but read below how and where TWM operates. Each month Max spends approx $900 on gas for his gas guzzling 8 year old Buick. With his new hybrid he estimated that his next monthly gas bill will drop to $450, and that makes his decision - he actually saves $20400 in 60 months, which if invested properly in a SIP would fetch him more than $40 K in just about the same time.

The state where he lives also entitles him to a tax rebate on his hybrid car, which would fetch him another $2000 in about five years. While the credit card penalty would be there just for a month, plus the same holiday could be enjoyed the following month.

The KEY:
Each and every decision on buying, spending, and investing, should be cleared first by using the two questions above. Temporarily Max did not pay up his credit card dues, and incurred a penalty (working out to 98% interest p.a.) a hefty rate by any standard, but by applying TWM he was able to expand his wealth to nearly $40K in just this one aspect.

He (Max) has already a running debt of about $16000, which he was paying up each month. It would therefore appear improper for him to avail a car loan of about, $24000, but yet he did and his decision is sound, given the totality - aided by the TWM concepts.

Looking ahead:
Whether it is a decision on purchases, loans, credit facilities, insurance or anything to do with money/finance, TWM if applied can result in increased wealth, less debts, and overall satisfaction and happiness throughout life.


Frank Walsh has also worked on Work from your home office , Make Money With Your Website and Creating Good Portfolio Sites.