Are you determined to build wealth and feel like you are doing everything right to do so? However, despite your efforts, you are unable to get there. Perhaps you are troubled by the rising cost of living or have not been able to adjust your spending habits as smartly as you should have. Whatever the case, there are some steps you can take to improve your situation.
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We consulted financial planners to find out the best advice they give clients who are struggling build wealth.
1. Implement plans
Often, people in the early stages of their financial journey need to know what to do to get started. Here you need some deep groundwork.
“When I’m working with these clients, it’s very important to have a plan,” said wealth management advisor Melissa Shaw. TIAA. “We want to see the income coming and going each month, create a budget, automate their contributions and growth in their retirement accounts, save excess income in non-retirement accounts for investments, real estate or life insurance (depending on your needs) and make sure their investment risk is appropriate for their goals.”
2. Remove mental barriers
Before starting a strong plan, including budgeting and retirement contributions, it is advisable that you identify and overcome mental barriers or beliefs that may be preventing you from building wealth.
“I encourage my clients to be honest with themselves and with me about what actions they will or will not take,” Shaw said. “If you’re not trying to live on a budget, why waste time creating one? We should be focusing on other areas of wealth building. It’s also important to address their beliefs about money. One question I ask every client is, ‘What is your philosophy on money?’
“This question provokes a variety of responses and really gives me a glimpse into my client’s beliefs and motivations,” Shaw said. “There are some clients who believe that money is the root of all evil or that they do not feel worthy of money. Many others believe that money is security or freedom. As an advisor, I need to know what this money means to my clients so that I can motivate them to take action.”
3. Eliminate debt
Unfortunately, it’s something most Americans can relate to: debt. This is the biggest obstacle to wealth creation.
“Debt is stealing from your future,” said Jay Zygmont, PhD, CFP, founder of childfree wealth. “Each loan you repay is adding to your overall net worth, and you are effectively getting a risk-free, tax-free return on the interest you paid. With interest now exceeding 20% on credit cards, paying them off is likely to be a better return than investing.”
4. Establish a fixed savings amount that is non-negotiable
Hazel Sacco, CFP, CDFA, President and Founder Align Financial Solutions LLCsees many young professionals – even those with high incomes – struggling to build wealth due to high expenses and rising costs of living.
“They often wonder how to make money when their expenses are so high,” Seko said. “My advice is to prioritize establishing a fixed savings amount that is non-negotiable. Once spending becomes a priority, it becomes challenging to cut back and allocate money to savings. This is also a key component of behavioral financial coaching as clients must get into the habit of prioritizing savings and allocating money before spending. This disciplined approach significantly increases their success rate in achieving their financial goals.”
5. Put together the money puzzle
Even already wealthy people may be confused or worried about making it. Shaw found that people who are in the later stages of life or who have a lot of wealth tend to focus on understanding their wealth and transferring those assets to future generations.
“Just because a client has a lot of assets doesn’t mean they understand it, know what to do with it or feel secure about their financial future,” Shaw said. “The questions these clients have are ‘I have all these assets, what do I do with them now?’ and ‘How do I pass this property on to my heirs?’ For many people, this is a puzzle that needs to be solved.”
How do you solve the puzzle? By classifying your assets into three categories: now, later, and never.
“Assets now are typically non-retirement investment accounts, bank savings and real estate,” Shaw said. “These assets typically provide income earlier in retirement and are better left to individuals’ beneficiaries.
“The latter bucket is tax-deferred assets, like IRAs, 401ks or annuities,” Shaw said. “These assets are fully taxable, provide the majority of retirement income, and are generally better left to charitable organizations (which don’t have to worry about taxes).”
Finally, the Never bucket includes investments that grow tax-free, such as Roth accounts, 529s, and life insurance.
“From a tax perspective these accounts are best left to individual beneficiaries,” Shaw said.
This article was provided by MoneyLion.com For informational purposes only and should not be construed as financial, legal or tax advice.
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