The vast majority of my clients and people that I know who are independently wealthy have not inherited wealth or won the Powerballâ€¦ it has been an accumulation of dozens and dozens of small, but tactical and educated decisions over time.
Becoming independently wealthy can seem like a hard and exclusive club to join. The vast majority of my clients and people that I know who are independently wealthy have not inherited wealth or won the Powerball… it has been an accumulation of dozens and dozens of small, but tactical and educated decisions over time.
One’s net worth is the simple calculation of taking your assets minus your liabilities (debts). Growing a net worth is a combination of BOTH building assets and paying down your liabilities in a strategic manner. Every dollar you put towards your net worth growing should be well thought out. Here are many net worth building activities that you should consider when mapping out your financial strategy:
1. Having an emergency reserve of six months of your fixed expenses — this is a key component. It serves as a nice buffer, and potential permission slip to then be more growth oriented with your excess cash flow on top of this. Being able to invest your net worth and have the money working for yourself is a key snowball effect to potentially accelerating the wealth curve.
2. Not wasting money no matter how much you have — spending can certainly be addictive and too often becomes desensitized. You do not have to be a slave to your budget, but monitoring (or at least auditing) your spending habits can help keep the ship headed in the right direction.
3. Taking advantage of tax advantaged investment vehicles* — not only does saving for retirement make sense, but some retirement vehicles can ALSO save you taxes in the year you contribute (i.e. 401k, 403b, SEP IRA, etc) or allow for potential growth to not be taxed once you start taking it out subject to certain limitations (i.e. Roth IRA, Roth 401k, Roth 403b, etc). Qualified account holders must be age 59 ½ before distributions are tax free.
4. Strategic debt pay off — paying down high interest debts fast and low interest debts slowly. It is surprising to me how often this simple strategy is overlooked.
5. Not overspending on the life’s big purchases — buying too big of a house or too big of a car can handcuff your budget. A great saying, that I feel is true, is that the upper middle class drives used cars and the lower middle class drives newer or nicer cars. Same can be said for housing.
6. Limiting real estate transactions for personal housing* — you can potentially lose quite a bit on the life of a home buy/sell to closing costs and realtor’s commissions. Staying in one or two houses during your accumulation years keeps money in your pocket.
7. Utilizing the advantages of potential compound interest!
8. If you don’t know the “rule of 72”, learn it and use it to your advantage.
9. Saving early and consistently — not putting it off with convenient excuses “there is no good time to start saving but the present”.
10. Automating saving — out of sight out of mind is the key. It is amazing how easy you can get by when you never see it. Try automatically saving your raises each year or bumping your savings rate over time.
11. Having a plan! Most people spend more time planning their annual vacation than their family’s financial future.
If you can pick up a few thousand more in savings or net worth in a year, and then use that net worth to work for itself in suitable investments that fit your time horizon and risk tolerance, this could potentially result in financial independence many years than where you would have done so otherwise… giving you the only commodity we can’t save or get more of: YOUR TIME.
Jon C. Ylinen is a Financial Advisor with North Star Resource Group and offers securities and investment advisory services through CRI Securities, LLC. and Securian Financial Services, Inc., Members FINRA/SIPC. CRI Securities, LLC. is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource Group is not affiliated with Securian Financial Services, Inc. but is independently owned and operated.Jon is a registered representative and investment advisor representative of CRI Securities, LLC. and Securian Financial Services, Inc.
*Please consult a financial professional for specific advice in relation to your individual circumstances. This should not be considered as mortgage, tax, specific loan repayment for an individual or legal advice. This is not a recommendation of any strategy or product in particular. 1560609/DOFU 8-2016