While prosperity means different things for different people, being able to realize the richness of life, family, money — wealth — is universal. We all have
desires to accomplish something
greater than ourselves.
Creating wealth provides security to enjoy and care for the people and places you love. With 80 percent of U.S. millionaires being first-generation “rich,” according to Thomas Stanley, who studied more than 1,000 millionaires for his book The Millionaire Next Door, it’s not only possible to build wealth but attain it.
These four strategies are the tip of the iceberg, but they get you started and keep you focused on reaching your goals.
1. Focus on building assets, not lifestyle.
This step certainly involves a dose (or two) of healthy honesty and humility to accomplish. Let’s start with “lifestyle inflation.”
One of the biggest mistakes people make when they start earning more is spending more instead of investing more. The desire to immediately buy new, better, more expensive things to match new perceived wealth, say from a raise, detracts from the goal of building assets that would generate more income. Wealth creation involves maintaining discipline and commitment to see it through.
Tip: Use the 24-hour rule to stop spending extra money. This mandates you wait 24 hours before making non-essential purchases on items you really want but don’t really need.
2. Diversify, diversify, diversify.
Most of us looking to create wealth rarely look beyond stocks/equities and bonds. And for good reason. Stocks/equities have a proven track record of providing higher returns than bonds or cash alternatives. But consider additional strategic income-producing assets to boost your wealth:
• Treasury Inflation-Protected Securities, or TIPS, which are marketable U.S. Treasury securities aimed at combating purchasing power erosion.
• I-Bonds, which also are backed by the U.S. Treasury and tied to the Consumer Price Index. Their interest rate is adjusted every six months in May and November based on the rate of inflation and can be cashed out after a year.
Stay balanced: At a minimum, sit down with a financial planner to examine your portfolio to ensure it aligns with your long-term financial goals. Think of it as a tune-up for your investments.
3. Continue investing, no matter what.
While it’s smart to keep cash on hand for emergencies, parking too much of your money in low-interest savings or checking accounts allows inflation to quietly erode its purchasing power. Instead, stay focused on your long-term goals.
Markets will rise and fall, but building wealth means staying invested and resisting the urge to move everything to cash when uncertainty strikes.
4. Preserve your wealth.
You’ve gotten this far, now let’s protect the wealth you worked hard to build.
A few tips to get you thinking in the right direction:
• Keep the savings pot primed for emergencies and large purchases. With three to six months of living expenses saved in a savings account or money market account.
• Stay in tune with tax liability. From a tax-diversified investment portfolio to a charitable giving strategy, tax-saving tactics help reduce your tax liability. For example, with a Roth IRA, you won’t pay taxes on it again or be subject to required minimum distributions in retirement.
• Invest in insurance. Annuities, as well as life, disability, and long-term care insurance, can protect your assets from unexpected changes to your family, career, and health.
Remember, building wealth is a marathon, not a sprint. The habits you create today can help provide the financial freedom and security you want tomorrow.
Lindsey D. Rhea, CFP, is owner and wealth strategist at Alia Wealth Partners, connect@aliawealth.com.
