Becoming wealthy is not only about how good you are at earning money. It’s also about understanding and protecting your money. Below I’ve outlined a few concepts which plenty of people—plenty of very smart people—often overlook. Perhaps you can pick up an idea or two which improves your own personal financial life.
Spend less than you earn – There are those that earn a dollar and spend fifty cents and there are those that earn a dollar and spend a dollar fifty. One may be inclined to think this sort of irresponsible spending happens most frequently with those earning small sums of money. I’ve found that the opposite is most often true. Plenty of individuals who earn over $100,000 per year spend more than that, often without even realizing. Between kids, housing, college costs, cars, vacations, etc, people simply cannot keep up. For many people, the idea of saving money eventually takes a back seat to simply ‘staying afloat.’ If this is you, it may be time to analyze how you’re living.
Protect oneself with insurance – There’s a very good reason why the insurance industry is the size it is. It doesn’t make sense for people to retain certain risks. What can one do? Transfer certain risks to an insurance company, pay the premium, and have some peace of mind. Take a doctor without malpractice insurance as an example. He or she may have worked for 20 years to save a million dollars towards retirement. What if, by accident, a doctor gives a patient medication which they’re allergic to, resulting in permanent injury or death to the patient? You can be reasonably certain the family of the patient will sue the doctor for a huge sum of money, quite possibly more than the doctor is worth. In a situation like this it would be silly not to have insurance. Even if it cost $10,000/year (which it might) to insure the doctor, they can rest assured that their livelihood is not at risk. The same lessons hold true with life insurance, health insurance, homeowner’s insurance, automobile insurance, etc. Proper (not excessive) insurance coverage is crucial to any well designed financial plan.
Carefully organize your finances – A client of mine recently missed a great opportunity to refinance their home because of bad credit. When the client found out he averaged a 600 credit score, he looked flabbergasted, as if that wasn’t possible. After we dissected the report, it turned out he was late one month on a mortgage payment and kept one credit card maxed out, even though he had ample funds to pay it down. I explained to him that credit scoring agencies don’t care how rich you are, they want to see how responsible you are. The point is everybody should be setting up some sort of automatic system for paying bills on time. Missing an opportunity to buy real estate or refinance an existing loan can cost you tons of money in the form of lost opportunity over the years. So please, take your bills seriously.
Take advantage of tax-friendly retirement plans - As much as you may hate Uncle Sam, he is interested in helping you saving for retirement. Why? The more you save, the less the government needs to save on your behalf. For this reason, we have vehicles such as the IRA and 401(k) available to us. These plans give us a tax deduction for the money saved inside and allow the funds to grow tax-deferred assuming you follow a few rules imposed by the IRS. At the end of the day, it’s a good way to save–often better than saving through non-tax-advantaged plans. Also, because contributions are often deferred directly from your paycheck, the savings become automatic and it becomes difficult for you to ‘forget to save.’ I recommend you meet with a financial professional and learn more about these plans. You can even utilize them if you are self-employed. The government doesn’t discriminate.
Diversify your portfolio* – 20 years ago it may not have been so uncommon to own a portfolio consisting only of stocks found in the Dow Jones Industrial Average. We are the US and our economy is the best, right? Well, maybe, but I’d advise you entertain the extent to which we are now a global economy. At my firm, and many others, portfolios must now pay attention to variables such as rapidly emerging third world markets, oil price volatility, currency fluctuation, real estate, etc. And as the world evolves, so do the financial products an investor can find to help them gain exposure to new and less popular asset classes. I recommend you think about the world we live in today and build a portfolio in which you feel invested and protected at the same time.
Premier Financial Advisors, Inc
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.
*Diversification does not guarantee against loss, it is a method used to help manage investment risk.