The Secret to Creating Lifetime Wealth (Part 6)
Image sourced by Iryna Tysiak @20ira17
Welcome back!
This final blog post in this series (at least for now) presents 11 powerful ways to create lifetime wealth, avoid outliving your money and enjoy the life you desire and deserve.
Lifetime wealth means living the life you desire.
Without getting too spiritual, I believe that lifetime wealth includes happiness and abundance as well as having enough money and resources to fund your lifestyle and do the things you want to do or most of them.
Freedom and Peace of Mind!
Ah. . . nice!
If you’re just joining this blog post series, click here to see Part 1, Part 2, Part 3, Part 4 and Part 5.
In this final segment of this Budget and Grow Rich® series, once more let’s think wealth, prosperity and abundance.
We’ll explore the 11 key factors that can help you position yourself to enjoy the life you deserve. On the flipside, Not taking these steps could derail Your ability to build lifetime wealth.
Let’s get to it!
1. Estimate your lifetime income.
In our blog post The Best Wealth-Building Technique of All Time! (Part 2), we discussed ‘Expected Value’ and talked about the importance of projecting/forecasting, your estimated lifetime income:
Expected Value means how much income you can reasonably expect to earn each year and over the course of your lifetime given your current skill base, career and career path.
Gaining an understanding of your expected value IS Mission Critical if you want to create lifetime wealth. Because you have to gain a realistic understanding of how much money you’ll have available to spend.
The concept is to determine how much money you can spend every month without running out of money. You have to calculate your monthly income or really take-home pay (cash) after you set aside money for your retirement.
With only a few exceptions, your take-home pay should be the maximum amount of money you should spend in total across all categories.
We explain this further as ‘Net Take-home Pay’ in #3 below.
Total up the expenses you must pay – for example, rent, mortgage, taxes, utilities, healthcare costs, insurance, car payments, food, etc.
Once you know How Much Money you need to spend on the items you must purchase – necessities, you can decide whether you want to take steps to increase your income – make more money; or design your lifestyle and spending to fit within your income. Or better yet, both!
Regardless, you’ll want to:
2. Structure your lifestyle, expenses and spending to fit within your income.
In other words, spend less than you earn.
You may recall in earlier Budget and Grow Rich® blog posts that my Dad taught me how to budget when he gave me my entire allowance for the Fall semester of junior high school in one shot. I was 12 years old. Terrifying!
One might call it Baptism by Fire!
At the time, Dad and I agreed that I would purchase certain things including lunch at school and my entertainment (movies and popcorn).
The money I had left over after paying the agreed upon expenses was available for discretionary spending.
We Can control discretionary spending. Although. . .
We may not want to; But we can!
Analyze your take-home pay – really your Net Take-Home Pay (which we explain in Step #3 below).
Set That Amount as the Maximum amount of money you can spend Every Month or every pay period without running out of money or taking on credit card debt.
That’s your personal budget. Make one and stick to it!
Needless to say, credit card debt is typically Very Costly and certainly will block your ability to build lifetime wealth.
The credit card interest expense alone will Eat You Alive!
3. Invest First. Spend Later!
Before you establish your monthly maximum spending amount – your spending limit – Make sure you take money Off the Top to save for your retirement and whatever other financial goals and personal goals you have set.
Many financial advisors and financial planners call this, “Pay yourself first.”
In other words, before you spend money, deposit some money into your wealth-building accounts and retirement accounts.
Examples include investment portfolios and retirement accounts including your 401(k) plan, 403(b) plan, IRA (Individual Retirement Account), savings accounts, money market accounts, etc.
Mathematically, to determine your spending ceiling, begin with your ‘Gross Take-Home Pay’ and subtract the amount of money you plan to deposit (invest) into your savings accounts, investment accounts and/or retirement accounts.
Gross Take-Home Pay minus savings dollars minus investments (money you invest) equals your ‘Net Take-Home Pay’.
Net Take-Home Pay means the total amount of money you have available for spending.
As a general rule, Always Look to Spend Less than Your Net Take-Home Pay.
And, if you happen to spend more than your spending limit this month; and we All Do from time to time; Be Sure to Reduce your spending next month to get back on track.
This technique is one of the very best ways to control your spending and cash flow and achieve your financial goals.
4. Continually look for ways to increase your income and cash flow.
To increase your income, take on more responsibility at your company and create more and more value. Then you should receive salary increases / raises and hopefully merit bonuses.
I had worked at one company that wanted to encourage/incentivize the employees to generate new business (sales). The company had designed an attractive commission plan. An employee that closed a sale/generated new business, received a commission for several years in a row. Money in the bank.
Passive income – money while you sleep. Love that!
Between 50 and 100 employees were earning sales commissions.
BUT that was ONLY Approximately 3% to 6% of the workforce.
SILLY!
Especially since many employees repeatedly said they wanted to earn more money and complained that money was tight. . .
Why not you!
In addition, if you come up with an innovation, new idea or suggestion for improvement where the company can sell more products and services and make more money, be sure to negotiate for a salary increase (raise), merit bonus, sales commissions or perhaps an equity stake in the company (ownership in the form of common stock or stock options).
If your company doesn’t offer such an incentive program or incentive plan, You MUST ASK!
As my Dad and many others say, “Nothing ventured, nothing gained.”
Separately, you could always embark on a Side Hustle or two to earn extra money. Although, in my experience, multitasking could cause you to lose focus. Conflicting priorities, divided loyalties and extra demands on your time and energy are often a negative and could detract from your on the job performance. Which would be a bad thing. . .
Believe me, I have been there, done that. But thankfully decades ago.
5. Continually look for ways to reduce your expenses and cut costs.
Many people, and I have been guilty of this, waste money:
We purchase things we don’t need or don’t really want.
Or we buy things we think we want, for example a gizmo relating to a new hobby we think we want to embark on. But we never quite seem to get to it. Trust me, I have gifted many an item to cousins, neighbors and coworkers.
Or we buy things we can do without – nice-to-have stuff but not a necessity.
We could purchase less expensive items to save money. BUT be sure to buy quality. When you buy on the cheap, beware of lower quality. The less expensive model may require more maintenance costs or wear out sooner than the higher quality item. Both situations are likely to increase your overall cost of ownership.
We could use coupons to save money.
We could defer buying ‘stuff’ until we accumulate enough cash to pay for the purchase without taking on credit card debt. This creates greater cash flow and helps avoid incurring costly credit card debt.
6. When your income increases, keep your expenses constant. Better yet, cut your costs; reduce your expenses; and put the extra money to good use.
Enough said.
Examples include (in no particular order):
Paying off costly credit card debt;
Paying down other debt;
Investing the money to build lifetime wealth for your future – saving for retirement; and perhaps a down payment on a house; And,
Establishing an emergency fund.
7. Create a personal budget. Follow it!
A personal budget is a record of your income and expenses and guides your spending.
A personal budget is a tool, which helps you track and guide your spending and puts you in a better position to achieve your financial goals.
To learn more about creating a personal budget and personal budgeting, click here and here.
8. Control your spending.
If we want to be honest with ourselves, I think it’s a no-brainer to say that it’s much easier and more enjoyable to spend money rather than save money.
Who are we kidding?
Of course spending money is more fun than saving money.
Except when you focus on the personal satisfaction and pride you get from getting one more step closer to achieving your financial goals. If your financial goals are important enough to you, you will be More motivated to control your spending. I do.
Given a fixed income (salary, etc.), in order to direct money to savings and investment, we must control our spending.
Again, if you spend more than your spending limit this month, be sure to reduce your spending next month to get back on track.
This all comes down to setting financial goals that are important to us – our personal wants and wishes.
And figuring out how much money we can spend without incurring costly credit card debt or running out of money. So that we achieve our overall financial goals.
Organize yourself and your finances so you deposit money into your savings accounts, investment accounts and retirement accounts (retirement plans) regularly. On schedule like clockwork.
One powerful way to build wealth is with Automatic Investing where you set up automatic withdrawals from your checking account every month, twice a month, etc. to send (deposit) your money to your retirement accounts, investment accounts, etc.
9. Minimize your taxes.
No doubt you’ve experienced the significant bite that taxes take out of your pockets.
Taxes include:
Income taxes on your income – salary, bonuses, etc.
Social Security and Medicare (although we expect to receive benefits when we retire).
Sales taxes and possibly use taxes on things you buy.
Real estate taxes and property taxes.
Capital gains taxes on appreciated investments and appreciated securities that you sell.
Potentially estate taxes; and,
Probably a few more taxes if we put our minds to it.
Where I live, sales tax is 8.375%. By not buying something or deferring the purchase date, you save the purchase price plus the sales tax.
In fact, $8.37 per $100 of cost. And that adds up every year.
Hire a tax accountant or CPA who has expertise in tax planning and tax compliance.
10. Invest your money wisely.
In order to build lifetime wealth and create the life you dream of and deserve, you must control your spending, make sound investments regularly and organize your investments to build wealth.
More specifically, you have to grow your money – compound your money.
As we’ve been discussing in Budget and Grow Rich® and in this wealth-building series in particular, you can grow your money by investing money in a mix of investments, creating a diversified portfolio – for example designing an asset allocation.
Asset allocation means the percentage of your investment portfolio that you invest in each investment / asset class.
Examples of types of investments or an asset allocation include common stocks; fixed income; money market accounts; Certificates of Deposit (CDs); U.S. Treasury bills, notes and bonds; corporate bonds; real estate; gold bullion; alternative investments or ALTS, which include hedge funds, private equity funds and other investments), and perhaps crypto currency, etc.
Traditional investments like the ones listed in the preceding paragraph (aside from possibly crypto currencies which are becoming more mainstream) typically work just fine.
And if you have idle cash sitting in your checking account, consider moving it to a savings account or money market account that pays interest income. Especially when the interest rates banks and financial institutions offer on savings account balances and money market account balances are attractive.
11. Balance saving and spending. And enjoy life.
Unfortunately, we don’t know which day will be our last.
My Dad is 92½ now and thankfully he saved enough money to fund his post-retirement living costs and living expenses.
NO way could he have predicted that he would live into his 90s. Although, his mother did live until 92. His Dad had a few heart attacks and died at 63. My mom died at 76.
So, I think it’s a Sound Strategy to accumulate money for retirement assuming we’ll live to 100 years old.
My step-grandmother died last year at 104.
And while saving money and building wealth for retirement, establishing an emergency fund and setting aside money for a rainy day are important and worthwhile, it’s very important to enjoy every day!
Two of my friends died last year. My neighbor Alex M. was 47 and MBA school classmate Ron S. was 63. I miss them!
So long as your financial situation is not dire and you don’t have to clean up your financial house or go on austerity, strike a reasonable balance between spending and saving.
Get to it now!
See you next week.
Arthur V.
P.S. To Create More Free Cash, Save More Money on Groceries Every Day – click here.
Disclaimer: OH and Please Remember, we are Not financial advisors, financial planners, attorneys or accountants and are Not providing any specific financial, tax or legal advice here. Be sure to conduct your own due diligence and consult your own professional advisors to get sound professional advice that’s specific to your financial and personal circumstances, risk tolerance, time horizon and investment goals and objectives among other key factors!
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