Here at Magellan Financial we have dedicated our life to helping families achieve their financial goals. The number one reason for building wealth is typically financial security, which ultimately leads to retirement. Life, however, can get in the way of building wealth as there are other important things in life (buying a house, college education, weddings, etc.). Like everything else in life, building wealth is a balancing act. It is simple, but not necessarily easy. Here are five ways to help build wealth:
1. Manage Your Debt
For many of us, debt is a part of life. Unfortunately, it is way too easy to dig yourself deep into a hole of debt. It starts with easy access to credit cards, continues on when you purchase a car, then super-sizes itself when you purchase a home. Somewhere in there many of us take on college debt as well. Don’t misunderstand; your car, your house, and your education are all very important. They are investments as opposed to impulse of strictly material purchases. It is best to avoid making these purchases, as they can literally cost you thousands if not hundreds of thousands of dollars over time.
Our advice: Do NOT take on more debt than you can conservatively pay back. Think in the long-term. If you have excessive debts, come up with a reasonable plan to pay them down over a number of years. Remember that having this type of foresight puts you in a better position than many people.
2. Save Aggressively
This is the other side of managing your debt. Twenty or thirty years ago retirement came from three sources – a company pension, social security, and personal savings. Flash forward to the 21st century and the times have changed. Social security only covers approximately 40% of your pre-retirement income and very few of us have pensions anymore. A reasonable standard is save 10% of your pre-tax income.
Our advice: start saving early and save at least 10% of what you earn, but preferably 15%.
3. Spend Within Your Means
Efficient and mindful spending goes hand-in-hand with our first two pieces of advice toward building wealth over time. If you have $75,000 of income every year, then you should spend less than $75,000 each year. Too many of us feel the need to have not just have good, but have the best of everything. This is fine if you have the income to buy the best of everything. For the rest of us, though, an important aspect of managing finances is understanding our needs vs. our wants. Budgeting on a regular basis, such as for recurring, fixed costs like rent, can assist in deciding whether or not to pass on a favorable purchase.
Our advice: Develop a family budget to help both control and prioritize spending.
4. Investing Should be Boring
It is fun to talk about the latest stock pick your broker gave you at the neighborhood July 4th picnic. Unfortunately, stock picking can be much like golf – you’ll take 100 shots, most are good, a few that you want to take a mulligan on, and one or two you talk about over drinks at the 19th hole. Makes for great conversation, but not great wealth building. Investing should be boring; that is, a consistent approach that tactfully allocates investments, rather than one that banks on the “hot stocks.”
5. Have an Investment Plan
Reaching a goal like building substantial wealth is hard. It is even harder if you float through in a hodge-podge manner without knowing whether you are successfully building wealth for yourself and your family. The easiest way to know if you are doing what is necessary to reach your financial goals is to have a solid plan. This means establishing your financial goals and aspirations, developing a savings plan you can reasonably follow, spend in a mindful way, and invest in a structured, informed way.
Our advice: Go see a financial advisor who specializes in planning to help you determine if you are financially on the correct path.
Building wealth takes time and discipline along with a plan. At Magellan Financial we have developed a retirement planning methodology over the last 25 years that has assisted many pre-retirees and retirees to make better decisions by understanding their financial situation. To schedule an initial consultation or learn more about how Magellan Financial can help you retire successfully, please call us at 610-437-5650 or email us at Rob.Cahill@WFAFiNet.com.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC, a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company. Magellan Financial, Inc. is a separate entity from WFAFN.