3 habits to start now to build wealth for a lifetime
Depending on the individual, reasons for wealth-building will vary. Some people are charitably inclined and would like to share their money with like-minded groups. Others want to leave a financial legacy for their heirs. Some might just want to retire comfortably.
Whatever your reasons, here are three habits you can start now to build wealth for a lifetime.
Review your financial situation regularly
First and foremost, I believe that individuals should have a true awareness of what is going on with their financial situation. The frequency at which someone reviews their finances depends on the person, but it is an action that shows a level of commitment to pursuing money goals.
If an individual has hired a financial planner, then these "check-ups" should get completed in that context, since planners generally provide them as part of their service/communication calendar.
As an individual continues to monitor progress toward their specific goals, they give themselves more opportunities to make adjustments when needed. Wealth-building over a long-term period might have levels of uncertainty at times, which is why the appropriate changes to someone's financial plan can be essential.
Take an example. Charles hires Mark as his financial planner. Mark's financial planning service calendar includes two Zoom video meetings per year. Charles takes advantage of this part of the service by always making himself available for his scheduled meeting and also contacts Mark whenever he has a question about something finance-related.
Over the years, Charles' income starts to increase significantly, which puts him in a much higher tax bracket. During one of his reviews, Mark notices the very high earnings of Charles and notes that allocating money to exchange-traded funds and/or municipal bonds (in a taxable investment account) could help lessen his tax liability. This close eye on Charles' financial situation means he is able to make better use of his wealth over time.
Evaluate reasons for your spending decisions
Viewpoints on how much someone should spend vary from person to person and depend heavily on financial circumstances. However, it is still very important for an individual to evaluate the "why" of their spending habits as they accumulate wealth.
"Unnecessary" buying over time adds up and can be extremely detrimental to wealth-building. I believe we should all be enjoying our lives, so my purpose here is to not make any suggestion on what people should or shouldn't do with their money, but rather get people thinking of why they make these decisions.
By answering this "why" question, an individual has more awareness of their spending activity and is less likely to overspend on something not really that valuable to them. Even though monthly expense amounts vastly range, it is very prudent to get in the habit of reviewing each item individually, which can lead to a substantially improved financial situation.
Let's illustrate with an example. Stephen is a high-income earner and saves consistently, but he knows that his savings rate is not high enough (per the recommendation of a financial planner) to attain certain longer-term goals. One of his highest monthly expenses is his car payment, and this has been true for several years.
Stephen begins to ask himself why this item is consistently so high. He honestly concludes that he purchases more costly vehicles because of the attention he receives while driving a very expensive car. Stephen knows that this type of spending is not appropriate, decides to lessen this expense, and reallocates some of the now-freed-up cash flow to improve his saving rate.
Allocate money only to financial vehicles that you understand
Even though a financial planner provides expertise/recommendations (and gets paid to do so), I still strongly believe that clients must have an understanding of where their money is going. Some questions to ask a planner could include:
- "How does allocating money to this specific financial vehicle fit into my specific plan?"
- "What are other alternatives, and why is the current recommendation more beneficial?"
- "How does this financial vehicle actually work and what are the charges?"
Yes, a financial planner uses their knowledge to provide value and solutions, but clients' goals should always remain the top priority, which means it is essential for them to know exactly how everything is working.
It is one thing for a financial planner to have answers, but once a client becomes knowledgeable and has clarity, all parties are empowered. Clients who feel a sense of empowerment are generally more engaged in a planner's financial planning process. More engagement in the services can result in open communication, better results, and further progress toward goals.
We have ideas to help you build wealth for a lifetime. Please visit FirstMidwest.com.
This article was written by Martin A. Scott from Business Insider and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to email@example.com.