Key Takeaways
- WizeFi helps you decrease the interest you pay and increase the interest you earn each year.
- WizeFi is designed to help you create a solid financial foundation so you can withstand even the most severe economic recessions.
- CAFR is applied towards a 4-step wealth-building plan:
- Step 1 Emergency Fund: in this step, you are building a financial foundation equal to one month of your net income and a minimum of $2,000. An emergency fund is important because it can help you decrease the interest you pay each year by decreasing your need for credit cards for those little life events like when your car breaks down.
- Step 2 Paying Off Debt: in this step, you are paying off all consumer debt (not including your mortgage or productive debt). To be most effective with paying off your consumer debt, WizeFi sorts your consumer debt in the order that it should be paid off and how much you should apply to each debt, monthly (this number will most likely change several times each year as you pay off debts). And feel free to try a different order, but just know that WizeFi's algorithm is based on 20 years of internal data and research to help people get out of debt and most importantly, stay out of debt. Our method mixed financial sense with behavioral sense so you can see progress more quickly.
- Step 3 General Savings: in this step, you are building up your cash reserves for major life events, like losing your job or short-term disability. WizeFi's guideline recommends 6 months worth of income in a general savings account.
- Step 4 Investing: in this step, your objective is to invest primarily in productive assets. We do not recommend investing while still obligated to monthly payments and non-productive debt, as you leave yourself vulnerable to economic corrections or personal financial setbacks. There are some exceptions to this rule, such as employer matching retirement accounts (example: 401(k)). Decisions like this, however, should be made with the guidance of your financial planner. Also, the target number under the label, "Step 4: Investing", signifies the target number you'll need in order to achieve sustainable wealth.
- You may notice your CAFR meter [at the top of your screen] is less than it was when you were creating CAFR in the previous step. WizeFi automatically applies some (or all) of your CAFR to monthly payments or contributions (examples: minimum payments to credit cards or monthly contributions to asset accounts).
- Each step has a blue meter that generates from left to right. This meter is a visual representation of your step completion as a percentage.
- Applying CAFR will not be a one time task. Some examples of your CAFR amount changes through the year, causing you to update your plan:
- Your income changes
- You adjust your budget to create more or less CAFR
- You ask "what if..." questions and try applying differently to see how your future net worth, assets, and liabilities change. (example: "what if I buy this house or that house?")
Terms
Sustainable wealth: the measurable point at which you reach financial freedom
CAFR: Cash Available For Reallocation. Income - Budget = CAFR. CAFR is applied to your 4-step wealth-building plan (the guideline CAFR amount is 20%).
Productive Assets: are assets that can provide you with a stable monthly income. A rental income property or dividend-paying stocks are common examples, but another example is a business you own, either as an owner/operator or as a silent partner. Those can all be examples of productive assets.
Non-Productive Assets: are assets that depreciate in value and don’t provide you with an income. Some examples would be your car, boat, recreational vehicle, the furniture in your home, the clothes in your closet, etc.
Productive Debt: is debt that can help you grow your net worth and your monthly income. Productive debt is used to purchase productive assets (examples: using a real estate loan to buy an investment property or a business loan to buy a business or piece of equipment for your business).
Non-Productive Debt: is debt that prevents you from growing your net worth. Credit card debt and auto loans are the most common types of non-productive debt. And contrary to opinion, student loan debt is also non-productive debt.
Consumer Debt: most consumer debt is also non-productive debt (except for a mortgage). Common types of consumer debt include, but are not limited to:
- Credit card
- Medical loan
- Student loan
- Auto loan
- Mortgage
Resources
Use the link below for strategies for making the most of your assets, liabilities, and insurances with our Resource Hub:
https://www.wizefi.com/resource-hub/
Use the link below to connect with a professional or apply to be a WizeFi professional:
Instructions
Goal: apply CAFR according to the guideline in an effort to get to "Step 4: Investing" as fast as possible.
The 4-step wealth-building plan will help you get there as fast as possible. Refer to the guideline (in purple) as a target total for each step. The guideline for step 2 breaks down the order and amount recommended, in order to get out of debt as fast as possible. Follow the instructions below to begin applying CAFR:
- Take note of which step you are on, which can be determined by the blue completion meters on each step.
- Click the step you are on. The guideline numbers (in purple, along the right) represent the recommended placement and amount of CAFR. If you did not create 20% in CAFR, then follow guideline placement for CAFR.
- Choose a subcategory you wish to apply CAFR to and enter the adjusted amount in the grey field(s) along the right or click the vertical triple dots to adjust the extra you pay/contribute.