Let’s Talk About Building Wealth
Here at My Money Story, we're often thinking about wealth, whether it’s helping our clients start building wealth, and cheering them on in their journey, or whether it’s reflecting on the inequities of the racial wealth gap and thinking of ways we, as individuals and as a society, can close that gap.
But first…what do we mean when we say wealth?
For us, it’s not the same as being rich. In our experience, folks whose primary goal is to be rich, are focused on mainly increasing their income and having a lavish lifestyle. And there’s certainly nothing wrong with that!
However, folks who are interested in increasing their wealth, tend to focus more on fine-tuning their money behaviors to match their ideal financial independence, building their savings, and planning for the future (with a particular focus on family and their communities). If that sounds like you, read on for some general tips!
Money mindsets and money behaviors
Start by gaining an understanding of your goals, your values, your history, and your money personality. Everyone’s wealth journey is unique, so it’s important to identify where you want to go (and not where your peers or society say you should go) to create an action plan that is tailored to you. Identify potential obstacles you might encounter and what strengths you have that will help you overcome those obstacles.
If you’re interested in checking out your money personality, we like these two free quizzes from Empower and Marcus (Keep in mind that no one money personality is better than the other).
On a regular basis, check in with your current spending habits and behaviors to see if they align with your values and short-term and long-term goals.
Be intentional with your spending habits- If possible, make sure you are not spending more than your income, and that you have plenty left over to save for your goals. And when it comes to discretionary spending, make sure you are spending on things that matter to you.
It’s helpful to think of money as a tool that can help you achieve your short-term and long-term goals, rather than an end in itself.
Savings
In general, studies have shown that folks with SMART goals are more likely to achieve them; and this is certainly true for short or long-term financial goals. However, sometimes we may not have a concrete goal. In these situations, it is still important to save, because we don’t want to lose out on the power of compound interest. So make it a habit to save, preferably via auto-savings to a high-yield savings account.
We like the different savings calculators from Bankrate that can help visualize the power of compound interest.
Consider the right savings vehicle for your money depending on your goals, and know the protections each vehicle has for your funds. For example-
For high liquidity, consider checking and high-yield savings accounts.
For retirement, take advantage of any company’s match to an employer-sponsored 401k/403B, etc. And if you are eligible, consider opening a Roth IRA.
For education savings, consider opening a 529 College Savings account or Coverdell Account
For folks with disabilities, or with children with disabilities, consider opening an ABLE Account.
Also, consider opening a non-retirement savings account for long-term goals
Try not to acquire too much debt, especially high-interest debt, as it will be difficult to save if a significant portion of your budget is tied to monthly debt payments. (Financial planners often recommend having less than 36% of your monthly income go towards debt payments; anything higher can put a major strain on your monthly budget and impact your long-term goals)
Planning for the future
Think of why you want to build wealth- is it to live comfortably in retirement? To pass on wealth to your children or community? Knowing the answer to this question will shape your financial action plan, and will motivate you when times get tough.
Consider obtaining insurance, such as life insurance, short-term/long-term disability insurance, etc. Insurance is a safety net that protects you, your loved ones, and your assets.
Take advantage of your community resources. For example-
Many municipalities run programs, such as the First Time Homebuyers grants, Small Business grants, and Free Tax Prep Programs. Government supports, such as SNAP and Medicaid, can also help with our monthly budget by providing a much-needed safety net.
Our family, friends, and neighbors have wisdom and lessons learned that they can share with us.
Also, many certified financial planners partner with community organizations to provide pro bono services. Certified Financial Planners can help us build an estate plan, and build a diversified savings portfolio.
Don’t forget the legal side- make sure all your accounts have your beneficiaries listed. And consider having a will, health-care directive, etc. prepared for worst-case scenarios.
We hope the above is a good starting point for you as you begin or continue on your journey.
*Disclaimer: We don't get referral fees for any product or resource recommendations. Listing a resource in this newsletter does not constitute an endorsement of its services/products.
