Most people build a foundation of wealth through the ongoing work they do, whether as a business owner, freelancer, or in a traditional job. Building and growing your own business or finding success in a career path is the means to fund both your current lifestyle and create a stable financial future.
Others may find themselves recipients of an inheritance, a windfall from an investment or employee stock, or profit from selling a business and use that money as a springboard to build wealth.
But no matter how high your income, how successful your business, or how big the windfall, the question lingers in the background – is it enough to create lasting wealth?
If your goal is to live the life you want and eventually remove the obligation to work, what do you need to think about besides money? Once-in-a-lifetime events happen (like a global pandemic), markets go through extended downturns (like they did for most of last year), and unexpected life or job issues can derail plans.
That's where financial planning comes in. We approach this as a process – not a product – by first focusing on your motivations, values, and the life you want to live, then making a thorough assessment of where you stand right now before using that information to identify goals and best next steps to help you on your journey. We then monitor your progress to make sure you stay on track, correcting course as needed when things don’t go as planned.
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Below are a few of the key issues you need to consider on your journey to lasting wealth beyond just saving and investing.
Define Wealth on Your Own Terms
Lots of people with lots of money struggle with feeling like they have enough. Others with average or even modest means are content with the lives they have – even if that means less conspicuous signs of wealth like fancy cars and big houses.
Rather than treating wealth as a number (will that number ever really be high enough?), let’s instead define wealth as a lifestyle. This allows you to understand what you need and when you need it. Once you start to understand what that life looks like, we can identify goals to help you get there.
If your ideal lifestyle involves lots of free time with your family, that’s great! We can turn that into a quantifiable goal based on your income, expenses, and time horizon. Always wanted to own a vintage muscle car? That goal comes with a price tag and we can make a plan for how much you need to save each month to afford it.
Once your goals are identified & clarified, we can build a financial plan that balances your current quality of life with the life you want in the future. For older generations, working and saving to retire at age 65 was the norm. With people starting families later and life expectancy going up, younger generations may have different goals – or multiple goals to achieve sooner than retirement.
Have you ever thought about:
• Early retirement
• One spouse stops working or switches to part-time
• Starting a business
• Buying a second home
• Paying off all debt early so you can self-fund a child’s college education
Even though money is involved in those decisions, we can shift the focus away from “what is the magic number” to “what does a great life look & feel like?”
Make Informed Choices
Flexibility is often a stronger pull than certainty for investors today. However you choose to define wealth, the focus is often a desire to have more control over free time and how much to work. Understanding the trade-offs can help you make decisions that are right for you.
For example, if retiring earlier than the current standard of 67 is your goal, you may have to make sacrifices lifestyle (i.e., spending) and free time in the short-term in order to quickly build up the kind of nest egg you need to support that early retirement.
However, there’s a limit to how long you can make sacrifices and continue to feel satisfied in your present life. Rather than take an all-or-nothing approach, we can look to several “levers” you can pull to create a better balance:
• Consider the impact of extending your retirement age or even switching to part-time employment
• Re-evaluate the level of risk in your investments – are you taking enough risk to match your desired rate of return?
• Prioritize paying off high-interest debt and shift to lower-interest debt
• Optimize tax efficiency
Early retirement is just one example, and there’s no one right answer. One person may choose to buckle down and sacrifice for the next 10 or 15 years to save as much as possible and another might prefer to work a few extra years or switch to part-time work to start enjoying the benefits of retirement while still maintaining an income.
Being thoughtful about your goals, exploring different scenarios, and looking at potential alternate approaches from the financial planning toolkit can put you on a path to maximize your own financial independence and flexibility.
Wealth is about Options
The first step to lasting wealth is to invest as early and as consistently as possible. Feel like you’re late to the game? I’ll let you in on a secret: nearly everyone feels that way. Don’t despair, though: the best time to plant a tree was 20 years ago; the second best time is now. Even if you didn’t start investing as soon as you entered the workforce, getting started now – or increasing your current investment contributions – is the best way to build lasting wealth over the rest of your life.
Ensure that you make the most of tax-advantaged retirement savings (like 401(k)s and IRAs), contribute what you can to health savings accounts and 529 college saving plans, and invest extra money in brokerage accounts to put your money to work right away – and potentially reduce your tax burden in the process!
Using your after-tax dollars to invest using taxable brokerage accounts can allow you to diversify beyond the options in your employer-sponsored retirement plan, HSA, or 529 plan. This allows you to adjust your risk profile and potentially boost return. Also, even though they don’t give you the benefit of deferring dividend & capital gains taxes, taxable brokerage accounts do not have restrictions on when you can access your money penalty-free – giving you added flexibility and liquidity until you are ready to use those retirement, health, and education accounts.
Adjust Your Risk Along the Way
Investment risk – including market risk (price drops across an entire market), concentration risk (too many eggs in one basket), and interest rate risk (your current interest-paying investments may lose value if interest rates change) – is just one potential headwind to building lasting wealth. You should also have an eye on protecting your wealth through managing other forms of risk.
Insurance might not be as fun (or scary!) to think about as investing, but a review of your insurance coverage can identify overlooked risks that could derail all of your progress. Life and disability insurance are just two ways that people can protect themselves and their families, but a thorough review of your liability insurance is also essential. Depending on your lifestyle and what you stand to lose if things go wrong, you may want to explore an umbrella policy that provides additional coverage beyond the limits on your existing insurance policies.
Start Estate Planning Now
Estate planning isn’t just about managing wealth; it also involves proactively making decisions for who should care for your children and pets, who should receive your assets, and who should manage the process of settling your estate (called probate), which can be lengthy, complicated, and expensive. Creating or reviewing your estate plan now can relieve a huge amount of burden for your loved ones later.
A good estate plan is both thoughtful and efficient. It ensures that your wishes are carried out and preserves as much of your estate as possible so that it passes to your dependents – and not to the IRS. For many families, a trust can simplify the transfer of assets, keep your estate private, and can be customized in ways a will cannot. You also don’t have to relinquish control of your assets.
The Bottom Line
Creating lasting wealth is about more than just investment and asset growth. Understanding your big-picture motivations, goals, the trade-offs of each choice, and how financial planning tools can help improve or simplify your journey can help you protect and grow your wealth for generations to come.
Timothy Iseler, CFP®
Founder & Lead Advisor
Iseler Financial, LLC | Durham NC | (919) 666-7604
Iseler Financial helps creative professionals remove stress while taking control of their financial futures. As both advisor and accountability partner, we help identify current strengths and weaknesses, clarify and refine your long-term goals, and prioritize understandable, manageable, and repeatable actions to bring long-term financial well-being. Reach out today to take the first step.
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