Time on this Earth is, unfortunately, limited. So when it comes to managing your wealth, you want to make sensible decisions.
Wealth management isn’t always easy, though. Nobody gives us a formula, so many of us wind up making mistakes.
In this post, we take a look at some smart decisions that you need to make today in order to avoid financial trouble when you get older. If you’re already over 40, don’t worry: it is never too late to start.
Seek out financial advice
The first step is to seek out financial advice. Usually, you won’t have the skills to optimise your financial strategy. It is a complicated business trying to figure out which assets you should buy.
Advisors can tell you about the various options open to you and which you should choose. They also give you an opportunity to ask questions and get answers. On many occasions, use their expertise to settle on a strategy quickly, instead of having to work it all out by yourself.
You can also consult books, podcasts and video tutorials. These provide you with information on how to invest, where to put your money, and how much you can reasonably afford to save.
Live within your means
Many people below the age of 40 believe that “life is for living.” And they are correct – you should try to get as much out of life as you can. But all too often “living for the moment” means spending all of your money today. When you do this, you actually deprive yourself of funds in the future, particularly if you go into debt.
The trick here is to live well within your means, always. Just because you earn $3,000 per month doesn’t mean that you need to spend every last cent. Instead, spend what you need to enjoy your life and then save the rest. A small amount of saving over a long period of time can build tremendous wealth in the future – more than you can possibly imagine.
Living within your means entails forgoing some of the things that you might want today. For instance, you may not have use of a car and you might need to cancel some of your subscriptions. But it can make a tremendous difference in your life in the long term. You may find that you have double or triple the wealth in your fifties and sixties compared to what you would have so long as you make investments consistently.
Talk to your spouse about money
Often spouses don’t agree with each other on how to spend and save money. There is often one spouse who wants to spend all the time and the other recognizes the value of saving.
Talking about it is a good place to start. Try discussing the consequences of not saving. Explain for instance, that avoiding investments today will make you substantially poorer in the future. Also discuss your money habits and where you are spending. It is easy to get into bad habits and start wasting money. You want to avoid this at all costs if you can.
Save for your retirement
If you’re not yet saving for your retirement, you could be harming your happiness and enjoyment when you stop working. Remember, the majority of people over the age of 65 do not have enough money to enjoy themselves in their old age. Many are living in income poverty, meaning that they are having to cut back on travel and socializing just to make ends meet.
Saving for retirement should start 30 years before you give up work – possibly more. In fact, it is never too early to put money into a tax-shielded account. You want your retirement income to be around 80 percent of your final salary to maintain a similar quality of life. If you save in the right way for long enough, you can actually increase this figure dramatically, perhaps receiving 200 or 300 percent of your final salary in dividends and payouts.
Build an emergency fund
People under the age of 40 should also build an “emergency fund” for expenses that they don’t expect. Things can and do go wrong in life from time to time, requiring large outlays. For instance, you may find that you get sick and need money to pay for medical bills. You may also find that you need money to pay for repairs on your vehicle.
Having an emergency fund gives you wiggle room – and it may even encourage you to take more risks when building your wealth. If you know that you have cash you can fall back on in an emergency, you may be more willing to lock your money away in higher-income funds for a longer period.
Building up an emergency fund is easy. Just set aside a few percent of your income for a couple of years and, eventually, you’ll wind up with enough money in the bank to see you through difficult times.
Protect your wealth
Building your wealth and protecting it are two different things. To build it, you need to work hard (or smart) and then invest it in various funds. To protect it, you need various forms of insurance.
Life and final expense insurance is important for protecting your family wealth if you pass away. This way, your family can meet funeral expenses and, in some cases, receive an income.
You can also protect your wealth by using insured deposits or even buying insurance against poor performance. However, you should note that buying insurance will lower your long-term wealth expectations.
Decide on why you will build wealth
Building wealth is only a good thing if you understand why you want to do it. You need to have an overall vision for your life that clearly sets out the costs and benefits of saving lots of money.
When you have a reason for making the effort, it becomes far easier to stick with it. But it needs to be something that you genuinely care about. Building wealth for the sake of it rarely works. There has to be something that motivates you to do it.
The best place to start is to think about the type of life that you want to live. What does that look like? Once you know this, you can get a handle on the level of wealth that you need to build to achieve it.
Interestingly, you may find that your actual financial requirements are quite low. You don’t need to take massive risks in your life to get what you want. Your needs are quite modest.
Get smart about credit
By definition, credit is borrowing. And borrowing carries an interest penalty. But it’s not all bad news. In fact, borrowing to buy something like a house can actually leave you better off than putting the money in the bank. That’s because house prices are rising so quickly. You might be paying a small amount of interest every year, but the value of property is increasing faster than the interest outlay. And so your overall wealth goes up, so long as you are a property owner.
Building your credit helps you access the best interest rates. This process increases your wealth even faster. You wind up paying less in interest and you get to keep more of your money.
To build your score, always pay off your credit cards and pay any recurring utility bills on time. Make sure that you correct any errors on your credit report as these can adversely affect your rating.
(Disclaimer: This content is a partnered post. This material is provided as news and general information. It should not be construed as an endorsement of any investment service. The opinions expressed are the personal views and experience of the author, and no recommendation is made.)