A Framework to Create Lasting Wealth
For most people, steady, ongoing work is the foundation of their wealth. Whether it's career success with a good salary or building and growing your own business, these are often the means to a lifestyle you enjoy now and the promise of a stable financial future. For others, wealth may come from an inheritance, a windfall from an investment or employee stock, selling a business, or even winning the lottery.
But no matter how high your salary, how successful your business, or how large the windfall—are these enough to create lasting wealth? What about generational wealth? If your goal is to live the life you want while ensuring financial security for your family for years to come, what do you need to consider beyond just money? Black swan events happen, markets can go through extended downturns, and unexpected life or job changes can derail even the best-laid plans.
That's where financial planning comes in. Here, we break down some key considerations on the journey to lasting wealth.
Start by Creating Your Own Definition of Wealth
Rather than focusing on a number, try defining wealth as a lifestyle. This approach helps you understand what you need and when you need it. Once you start to clarify your goals, you can build a financial plan that balances your current lifestyle with the future you want to achieve. For older generations, working and saving until retirement at age 65 was the norm. However, younger generations may have different or multiple goals and may want to achieve them sooner, such as:
Early retirement
One spouse stops working
Start a business
Buy a second home
Pay off all debt
Self-fund your children's college education
Make Informed Choices
The word that resonates most strongly with investors today is flexibility. Whatever your individual definition of wealth, it often begins with the desire to have more control over your time and work.
Understanding the trade-offs involved can help you make decisions that are right for you. For example, if early retirement is your goal, a common approach is to sacrifice lifestyle and time in the short term to reduce expenses, increase savings, and maximize income through work. There’s even a name for this—the FIRE (Financial Independence, Retire Early) movement. However, there's a limit to how long you can make sacrifices while still feeling satisfied with your life in the moment. Instead, consider the various "levers" you can pull to create a better balance:
Extend your retirement age
Re-evaluate risk in your investments
Reduce high-interest debt and shift to lower-interest debt
Optimize tax efficiency
This is just one example, and there's no one-size-fits-all solution. By being thoughtful about your goals, exploring different scenarios, and using the tools available in financial planning, you can maximize your financial independence and flexibility.
Expand Your Options
The first step to lasting wealth is to invest as early and as consistently as possible. Maximize your contributions to tax-advantaged retirement savings accounts, and take advantage of health savings accounts (HSAs) and 529 plans. This approach allows your money to work harder while reducing your tax burden. Additionally, consider expanding beyond the options available in retirement plans by investing after-tax dollars into a taxable account. This strategy can help you diversify your portfolio, refine your risk profile, and potentially boost your returns.
Pro Tip:
Make sure that the types of investment accounts that you’re using fits your goals and objectives
Control Your Risk
Building lasting wealth means protecting it. Regularly reviewing your insurance coverage to account for potential liabilities is critical. Depending on your lifestyle, you may want to explore an umbrella policy that provides additional coverage beyond the limits of your existing insurance policies.
Start Estate Planning Now
If you want your wealth to provide for your family for generations, you need to act proactively. A well-crafted estate plan is both thoughtful and efficient, ensuring that your wishes are carried out and that as much of your estate as possible goes to your dependents, not to taxes. For many families, a trust can simplify the transfer of assets, keep your estate private, and offer customization that a will cannot. Plus, you don’t have to relinquish control of your assets.
The Bottom Line
Achieving lasting wealth requires more than just growing your assets. By understanding your goals, considering the trade-offs, and incorporating financial planning tools, you can protect and grow your wealth for generations to come.
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