Building Critical Capital™

You have made the major purchases (see Foundations) and have settled into a comfortable lifestyle. Your focus is on building Critical Capital™, the capital you need to maintain this lifestyle without the need to work. Your salary may have increased and/or your options are now worth a tidy sum. Perhaps you're thinking about making some lifestyle "upgrades," but don't want those upgrades to endanger your future financial security.

Key Issues & Actions

The key issue during this stage is to define your Critical Capital™ and begin the process of achieving it. While you often have the ability to ratchet up your lifestyle, you don't want to do it at the expense of your long-term goals.

• Define your Critical Capital™. Now that you've established your lifestyle, you can quantify what it will take to maintain it.

• Determine Your Critical Capital™ Strategy. Stock options are one of the riskiest investments you can own (see Lesson 4). They also are one of the most effective personal wealth creators in our economy (see Lesson 3). The Critical Capital™ Strategy enables you to balance these two factors, protecting yourself from the risks of your options while maintaining their upside potential! You can have your cake and eat it too! Here's what you need to do:

  1. Exercise just enough options to secure your Critical Capital™ at a reasonable age. (The stock received should be sold and the proceeds reinvested in a diversified portfolio.) And

  2. Hold the balance of your options for maximum gain.

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