Magellan Financial Advisors

Asset & Wealth Management in Allentown, Pa

The life you imagine is built on the decisions you make today.

 610-437-5650

  •  Home
  • Services
    • Investment Planning
      • Wells Fargo Advisors’ Envision® Process
      • Investment Planning Process
      • Life Insurance Services
      • Estate Planning Strategies
      • Impact Investing
    • Investment Management
      • Tactical Asset Allocation
    • College Savings Plans
      • College Savings Basics: How & When To Save
    • Business Financial Services
    • Retirement Planning Services
      • Retirement Is For Living
      • Social Security & Medicare Benefits
  • Impact Investing
  • Team
  • Become A Client
  • Work At Magellan
  • Blog
  • 401k
  • Contact

6 Ways High Earners Derail Their Investment Plans

Apr 09 2019

Man Walking on Train Tracks Lehigh Valley PA

Earning a good income should make building wealth easier. Still, high incomes never guarantee high rates of savings. In addition, some folks manage to grow their assets with fairly modest earnings because they understand how to manage money wisely.

It’s a fact that 14.7 percent of U.S. households (Statista) and 10.9 percent of Pennsylvania households (Visual Capitalist) earn more than $150,000 annually. At the same time, even those families at the top often fail to achieve such financial goals as: saving for college, upgrading homes, and planning for a comfortable and fruitful retirement.

Here at Magellan Financial, we help productive income earners turn their money into wealth. When we work with you, we begin by understanding what matters most to you for both your current lifestyle and dreams for the future. Then we will work together to develop a comprehensive plan to support your goals.

To help you understand how we will help you, continue on to learn about the six common pitfalls that used to derail many of our current clients’ financial plans.

Pitfall 1. Failure to Budget or Track Spending

You have probably read news articles about formerly wealthy celebrities who ended up impoverished despite earning millions of dollars. Naturally, it’s hard to imagine how these people did not plan for a temporary loss of income when they had so much money at their disposal. Typically, high earners struggle because their lifestyle inflates even faster than their compensation.

You can work with us and make use of our many budgeting and tracking tools to keep budgets in check. To get started, you might review the tips on retirement budgeting on our blog. You want to first document the types of fixed expenses that you can already anticipate for such necessary items as housing, food, and transportation. Then you can add in discretionary spending for trips, entertainment, and luxuries. We want you to enjoy the fruits of your labors; however, you will enjoy them even more when you have the security of a good plan to build wealth behind you.

Pitfall 2. Failure to Develop Mid- and Long-Term Investment Plans

People who earn high incomes often believe that large amounts of compensation will protect them from any unplanned financial difficulty. That is, they believe that until the difficulty happens, and then, without a solid investment plan, they are often prone to making impulsive decisions because they panic.

For instance, people who could hold onto the bulk of their portfolios eventually exited the last recession even better off than they were before. Sadly, folks who panicked and sold assets too early only had losses to show for their efforts. People don’t thrive during both good times and bad times by accident but because they can sustain and build their wealth through careful planning and a proven strategy.

Golfer Allentown PA

Pitfall 3. Keeping Savings Rates Static as Income Grows

During the first few years of work, you may have been challenged to set a fairly small portion of your income aside. Later, when your income grew through salary increases, bonuses, and other compensation, you should consider letting your savings rate increase faster than your spending rate does.

For instance, your employer may not automatically take out some percentage of your bonuses to add to your savings plan, so it may be your responsibility to carve out those extra savings. If you’ve already maxed out tax-advantaged savings for the year, you can always open a brokerage or other financial account to keep accumulating savings. If you commit to boosting your rate of savings along with your income, you’ll be able to leverage compound earnings to build wealth faster.  The satisfaction of watching your assets grow will be greater than the temporary pleasure of spending all your extra money on things that won’t last.

Pitfall 4. Lack of Income Protection...

Typical families understand such kinds of income protection as life and health insurance. High earners usually have responsibilities and even vulnerabilities that require them to explore additional protection. After all, people who have a lot of assets will also have a lot to lose.

For instance, a surgeon may have a more critical need for short-term disability and professional liability coverage than a salaried hospital administrator. Similarly, high earning families with a single income may need to think about the amount and kind of life insurance they should buy in a different light than married couples or people with more modest salaries. We help our clients make certain that such products as life, disability, property, and liability insurance match their unique needs.

Pitfall 5. … Or Asset Protection

Hopefully, high incomes lead to accumulating more assets. People who manage to earn and save a lot also need to make sure they keep assets protected. For instance, you might need to protect your wealth with an umbrella policy to broaden liability coverage.

If you set up your business organization properly, you will not only protect your assets — you may have ways to save money on taxes. If you own a small business, this may be one of the most critical steps that you can take to sustain your wealth and protect your family. We can guide you with our tested asset protected strategies as part of our asset and wealth management services.

Pitfall 6. Lack of Tax Optimization Tactics

You should not assume that how much and when you have to pay taxes is completely out of your control. Most high-income earners can reduce taxes by working with a financial advisor and tax advisor to develop strategies to time and lower current and/or future taxes.

Consider these examples:

  • Most of our clients know that a Roth IRA can offer them tax benefits, but they don’t know when or how to do a Roth conversion. We can discuss the tax implications of conversions and help handle the paperwork.
  • Almost everybody would like a chance to save money on more valuable health insurance. A high-deductible health insurance policy combined with a health savings account, or HSA, will give you the chance to gain an extra deduction, put money aside for out-of-pocket medical expenses, and possibly, roll unused funds into retirement.
  • Self-employed people should consider the timing of other tax deductions, including for charitable ones. For instance, donating appreciated stock instead of cash can offer you a greater deduction.

We Help High Earners Develop Solid Financial Plans

Earning a high income gives you an advantage when you want to grow your wealth; however, you cannot waste that advantage by neglecting your budget, failing to increase your savings along with your income, or ignoring the necessity of developing a solid financial plan. In addition, you can protect your assets and income to make sure you keep your nest egg secure. Finally, you should optimize savings in order to minimize both current and future taxes as much as possible. That way, you can enjoy faster growth through the power of compounded earnings.

The more you save and invest, the faster you can get that money to begin earning for you. Contact us here at Magellan Financial to tell us about your financial goals, and we’ll demonstrate how we have helped plenty of high-earning clients in similar situations.

Sources: https://www.visualcapitalist.com/household-income-distribution-u-s-state/

Have additional questions or concerns about your family and finances? Contact Magellan Financial today to speak to our Advisors.

The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates The material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.

Categorized: Family & Finances, Retirement Planning
Tagged: Financial Planning, financial wellness, income streams, Investment Planning, retirement planning, spend management

Recent Posts

  • 5 Financial Moves for the Post COVID-19 World
  • Monthly Stock Market Review – November 2020
  • 5 Characteristics to Look for in an Investment Planner
  • Monthly Stock Market Review – October 2020

Categories

Archives

Blog Subscription


Contact Magellan Financial Advisors

MAGELLAN FINANCIAL, INC.

1605 N Cedar Crest Blvd #111
Allentown, PA 18104 USA

 610-437-5650

Toll Free:  1-888-437-5650
Fax:  610-437-5654
Email:  Rob.Cahill@WFAFiNet.com
Click Here for Directions

Financial Services

  •  Investment Planning
  •   Investment Management
  •   Business Owners
  •   Retirement Planning Services
  •   401(K) Retirement Plans
  •   Socially Responsible Investing

Client Resources

  •   Educational Resources
  •   Family & Finances
  •   Business Financial Services
  •   Stock Market Review
  •   Retirement Planning
  • Life Insurance
Investments in Securities and Insurance Products:
Not Insured by FDIC or any Federal Government Agency
May Lose Value
Not a Deposit of or Guaranteed by a Bank or Any Bank Affiliate

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN). Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC (WFCS) and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affliates of Wells Fargo & Company. WellsTrade brokerage accounts are offered through WFCS.

This information is intended for use only by residents of AZ, CA, CO, CT, DC, DE, FL, IL, IN, KY, MA, MD, NC, NJ, NM, NY, OH, PA SC, UT, VA, VT, WA, WI. Securities related services by Magellan Financial, Inc., may not be provided to individuals residing in any state not listed above. Insurance-related services may be provided by Robert I. Cahill, CFP, Managing Partner, only to individuals residing in: AZ, CO, FL, MA, NJ, NY, PA, SC, VA.

A Note About Social Media
Opinions, comments and actions taken on Social Media are those of the third party and do not necessarily reflect the views of the creator of this profile or of the firm. Social Media is intended for U.S. residents only and subject to the following terms: wellsfargoadvisors.com/social.

Privacy Policy | Legal | Security | Sitemap ©2021 Magellan Financial, Inc. | All Rights Reserved Designed And Developed By DaBrian Marketing Group, LLC.
MENU
  •  Home
  • Services
    • Investment Planning
      • Wells Fargo Advisors’ Envision® Process
      • Investment Planning Process
      • Life Insurance Services
      • Estate Planning Strategies
      • Impact Investing
    • Investment Management
      • Tactical Asset Allocation
    • College Savings Plans
      • College Savings Basics: How & When To Save
    • Business Financial Services
    • Retirement Planning Services
      • Retirement Is For Living
      • Social Security & Medicare Benefits
  • Impact Investing
  • Team
  • Become A Client
  • Work At Magellan
  • Blog
  • 401k
  • Contact