No one would argue that having your health, the love and support of family and friends, and something worthwhile to do every day is a great definition of wealth.
But what about financial wealth? I like to think of financial wealth as reaching a comfortable and desired lifestyle that can be maintained prior to, and through retirement with little to no stress of running out of money. There are a few steps that we can all take to build that lifestyle and most importantly, maintain it.
While not exhaustive, here are five steps to consider:
1. Live Within Your Means (and avoid “lifestyle creep”!)
Don’t concern yourself with keeping up with your neighbors, Facebook friends or work colleagues:
- Graduate from a “Paycheck” to “Net Worth” mentality. Building wealth and time with loved ones are more important than accumulating things or trying to impress others.
- Live on 90% (or less) of your income.
- Pay-off credit cards monthly – then NEVER pay credit card interest again.
2. Save Regularly (and Increase your savings rate over time).
The best time to start saving is right now. The best way to save is automatic deductions from your paycheck or automatic direct debits from your checking account. Time can be either your friend or your enemy. Whatever age you are, if you haven’t started, start now.
- Pay yourself first. Start with what you can but make every effort to receive your full company 401(k) match (NEVER leave free money on the table!).
- •Get to at least 10% saving rate ASAP (make a budget and live on 90%, or less).
- “Savings over Lifestyle”. Commit a significant portion of every future pay increase or bonus to increasing your savings (not your lifestyle).
3. Simple Beats Complicated When It Comes to Investing
The best odds of long-term success are a low cost, diversified portfolio, rebalanced regularly to your target risk level.
- Determine your appropriate risk level considering your emotional tolerance for risk and time horizon to needing the funds.
- Determine your initial allocation based on your risk assessment.
- Use low-cost index funds or ETF’s for your portfolio. Those hidden (and not so hidden) fees will have a significant impact over time and reduce your total returns and your retirement lifestyle.
4. Protect Your Wealth
Death, disability, natural disaster, health care needs, or even a lawsuit, can quickly diminish your wealth or leave your loved ones in an unfortunate situation.
- Understand your risk protection needs first and then find the appropriate product. Not the other way around (no matter what the salesperson says).
- Buy only what you need to protect your risk and only for the time you need it protected. Insurance products are NOT retirement plans (no matter what the salesperson says).
5. Work with a Trusted Advisor Who Will Put in Writing They Are a Fiduciary
Almost anybody can call themselves a financial advisor so ask the right questions to find the advisor for your needs. Some key questions:
- “Are you a fiduciary?” Believe it or not, not all advisors can attest to working in your best interest. Pick an advisor who will put in writing that he or she is a fiduciary working in your best interest.
- “How are you compensated?” How your advisor gets paid is very telling as to how they will advise you (and whose best interest they may have in mind). Are they paid for their time and knowledge directly by you (and only you)? Or are they receiving commissions from a catalogue of company promoted products chosen for them or the investment fund they are recommending?
- “Will you deliver a broad-based financial plan and be available for consultation as financial questions arise?” Will they understand the implications to a wide range of aspects of your financial life, or are they more interested in selling you product, trading in your account, or getting hold of more of your assets to increase their fee?
- “What is your education background? Are you a CFP®?”
- “What type of clients do you work with?”
Fialkow Financial Planning
Fialkow Financial Planning is located in West Palm Beach, Florida and accepts clients nationwide. I provide high quality financial advice to people from all walks of life and income levels without the need to sell products, take assets under management for a fee, or require minimum asset or net worth levels. I proudly embrace my fiduciary responsibility.
Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC., a fee-only, SEC-registered investment advisor. Tel: (910)-FEE-ONLY. Fialkow Financial Planning may offer investment advisory services in the States of Florida and Texas and in other jurisdictions where exempted.
This communication has been provided to you for informational purposes only. Although information in this presentation has been obtained from and is based upon sources that Garrett Investment Advisors, LLC believes to be reliable, Garrett Investment Advisors, LLC does not guarantee its accuracy and it may be incomplete or condensed. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute