Wealth Management
Managing Wealth
We are all shocked when we read about a famous celebrity with wealth who made millions over the course of his or her career, but who dies bankrupt. When actress Judy Garland of Wizard of Oz fame died in 1969, she had over $4 million in unpaid debt. The million dollar estate of Mickey Rooney, whose acting career spanned nine decades, had been reduced to only $18,000 when he died at age 93. Michael Jackson was $500 million in debt when he died in 2009, and Burt Reynolds, immensely popular in the 1960s, 1970s, and 1980s, declared bankruptcy in the 1990s. “I’ve lost more money than is possible because I just haven’t watched it,” Reynolds is quoted as saying in 2015, three years before his death.
Mr. Reynolds’ statement is a powerful one. It does not matter how much money you make, you have to learn to manage it wisely. And as these celebrities’ situations indicate, it’s not how much money you make, but rather how much money you keep. Unfortunately, these celebrities fell victim to what is known as lifestyle creep. The more money they earned, the more they spent, eventually borrowing even more money to support the lavish lifestyles to which they had become accustomed.
Avoiding lifestyle creep requires a disciplined approach, but it need not be a complex endeavor. One simple technique is to employ a bucket money management system. Using this system, you distribute your income among five buckets: a necessities fund, an emergency fund, an investment fund, a skills fund, and a fun fund.
Necessities Fund
The money in this necessities fund is held in cash or in your checking account to pay for life’s necessities, such as housing, utilities, food, transportation, and insurance. A recommended target is 60 percent. That is, 60% of your income should go to spending on necessities. Whether you choose to DIY or work with a financial advisor, getting started with wealth management is a smart move that can significantly improve your financial position.
Emergency Fund
The money in this fund is to be used for emergencies, like that huge deductible you must pay if you have to have an unexpected surgery. You should grow the money in this emergency fund until it equals at least six months of monthly expenses, should you lose your job or another emergency situation. Since you need this money quickly if an emergency occurs, this money should be kept in a bank savings or money market account, where it will earn at least a little interest, but still be readily accessible. Start by directing 10% of your income into this bucket. Then do not touch it unless a true emergency occurs—and that does not mean a Caribbean vacation, no matter how well-deserved.
Investment Fund
You also need to plan for your future, i.e. retirement. Another 10 percent of your income should be invested in assets that can be expected to increase in value over the long term, such as stocks, real estate, and business. You can invest in some paper assets, such as mutual funds, exchange-traded funds (ETF), bonds with as little as $100 to start building wealth. One of the best pieces of money management advice is, “Pay yourself first.” When you direct $100 to be automatically invested in the investment fund each month, you are unlikely to miss that money. There is an old saying in the investment world: “Bulls get rich, and bears get rich, but pigs get led to slaughter.” Do not be greedy and invest in something that may (or may not) be able to return 25% a year. A 7% to 10% return will allow your money to grow nicely without exposing you to unnecessary risk. If you are seeking much higher returns on investment, then become a qualified accredited investor per the Securities and Exchange Commission.
Skills Fund
In addition to investing for retirement, you should also be investing in yourself. The money in this fund is set aside to spend on improving your high income skillsets through online courses, attending conferences and other personal development events. Consider reading personal finance books and registering for a public speaking class. It is recommended that 10% of your income be directed into a fund to support these self improvement activities.
Fun Fund
It helps us maintain our discipline when we know we also have a fun fund that we can spend on anything we want, so another 10% of your income should go into a fun fund that will enable you to enjoy some of the fruits of your labor. Maybe it is that new electronic device you have your eye on, a nice dinner out, perhaps a round trip to an all inclusive resort, or tickets to an upcoming concert or athletic event.
In reading this, you may be saying to yourself, “There is no way I can live on just 60% of my current income. My necessary expenses amount to much more than that.” So, adjust the percentages for each of your buckets. Maybe you need to put 80% of your current income in the Necessities Bucket, but do not neglect the other buckets. You could then direct 5% of your income in the other four buckets until you can afford more—perhaps because you get a raise. Just do not let that raise make you the next victim of lifestyle creep.
How To Get Rich And Stay Rich
As you earn more and more money, you should adjust your wealth management system accordingly. If you are earning less than $50,000 a year, directing 10% of it to your investment fund is your goal. But once you start earning between $50,000 and $200,000, you should target 15% for that fund, reducing your necessities fund to 55% of your income. When you are earning between $200,000 and $500,000, start putting 25% into investments, and beyond that, 35% or more. Again, you can do this by reducing the percentage you direct to your necessities fund. Think about it. If someone is earning $1 million a year and is spending 60% of it on necessities, that’s $600,000 a year. That is pretty extravagant. Remember, it is ideal to keep your monthly expenses low and your assets or income column high in order to get rich and avoid lifestyle creep from eating your wealth.
How To Get Rich
3 Fastest Ways to Get Rich
As you get older, your energy level drops, and you may rarely have enough time. Your time will be taken up by your spouse and kids and you will not really have the desire to try new things. Very few people appreciate how much energy and vitality they have when they are young, so we end up misusing our youth and then spend our old age regretting. To become rich and financially free, you need to begin your wealth building efforts early.
Why is it important to build wealth? The benefit of having wealth includes the freedom and full control over where and how you spend your time. When you start to earn all or the bulk of your income from passive income investments, you are able to:
- Retire early
- Spend more time with family and friends
- Build generational wealth and trust funds
- Travel around the world and holiday in exotic locations
- Buy your dream home
- Buy your dream car
- Have access to better medical or healthcare
- Volunteer and donate to causes that you believe in
- Holiday or vacate whenever you want
- Start a business doing what you love
- Work from anywhere, such as a beach in Ibiza
The list is basically endless. There are so many advantages that passive income streams can earn you. If you are looking to become financially independent and wealthy, here’s how below.
Success often leaves clues. What separates the rich from the poor and middle class is the power of leverage. For example, rich people are able to leverage income through the efforts of other people’s time, knowledge, and money. Check out this list of the 3 fastest ways to get rich:
1. Make more money. The fastest way to get rich is to steadily increase your income while decreasing your monthly expenses. Consider getting a better paying job, a second job or side hustle to accomplish this financial goal. Once you are financially stable, I highly recommend you develop and master high income skills that eventually pay $10,000 a month or more.
2. Save more money. Set aside no less than 10 percent of all earnings and adjust accordingly as your wealth continues to grow.
3. Invest more money. Tax returns show that the average millionaire has 7 streams of income, do likewise and diversify your portfolio. Take investing or wealth building to the next level by creating and buying assets throughout your entire life. For more info, read Rich Dad’s Guide To Investing: What the Rich Invest In, That the Poor and Middle Class Do Not!
About
Wealth Teacher
FINANCIAL PLANNING
1. Master High Income Skills and Earn More Money
Generally speaking, you do not have a savings problem, you have an income problem. You need to earn a lot more income as well as increase your income earning potential. In order to do that, I highly recommend you focus your energy on mastering a high income skill (a skill that will help you make a minimum of $10,000 per month) that does not require a post-secondary education. In addition, this is a skill set that you could learn the basics within a relatively short period of time, such as a few months.
Take the following list of high income skills for example: advertising (i.e. create and manage Facebook ads, Google ads), affiliate marketing, consulting, copywriting, sell digital courses, digital marketing, eCommerce (i.e. Amazon FBA, Shopify Dropshipping), entrepreneur, lead generation, public speaking, sales, web design, or YouTube channel creator. Overall, pick a skill that most resonates or interests you, that you may be naturally good at and commit to getting better every single day. I repeat and emphasize, you must study and/or practice this high income skill daily so that you become a subject matter expert in order to position yourself to make six figures.
On a lesser note, you can earn more money as a freelancer on huge website platforms like fiverr, guru and upwork. For the formal learners, investment banker is one of the highest paying jobs that make you rich fast. Yet and still, the best way to make a lot of money is by creating multiple streams of income, preferably thru passive income investments.
2. Have A Financial Plan
In order to obtain wealth, you must have a financial plan. As multiple streams of income do not happen by chance, it is a reward for meticulous financial planning and effort. Have a plan that states how much money you expect to save every month, how much you intend to invest towards wealth building, and the things that you need to work on. You need to fix a timeline to your goals and work within that schedule.
3. Save Money to Invest
Another step towards earning a passive income is to set aside money to invest. I recommend that you save a minimum of ten percent of your active income to invest into income producing assets that will have positive cash flow. Remember that you can not build a passive income if you have not committed to the idea of reserving money until you have enough to invest in a sure thing (asset).
4. Realize That You Have to Start Small
A lot of people get discouraged at the beginning when they realize how far they have to go. A journey of a thousand miles begins with a step. Even though your goals are lofty, you have to set milestones. These realistic milestones will serve to guide you and remind you that you have achieved some things and you are on the right path.
5. Start now
Devote your time toward obtaining a high financial IQ by reading numerous personal finance books like The Richest Man in Babylon or Rich Dad, Poor Dad. Likewise, every rich or wealthy individual had to start from somewhere. Warren Buffett, one of the most successful investors of all time, bought his first shares of stock when he was 11 years old and became a millionaire by age 30 and a billionaire at 56. So begin that personal financial planning process of making more money, saving more money and investing more money. Remain consistent with what you do, and you will reap the rewards.
