Four steps to build and maintain wealth

It’s easy to look at people around you who seem to have accumulated more wealth than you and believe they know some big secret that you don’t. Actually, when you break down what people do to build and maintain wealth, it tends to be a series of relatively common-sense actions taken patiently over time. Here’s a good list of four simple steps to start with.

1. One my favorite life sayings is relevant here: “Keep it simple stupid.” Building wealth does not need to be complex.

2. Be patient. The process takes a while and the most reliable process requires the most patience.

3. If there really is a secret sauce that very few people do, it’s this: save regularly. Save some money from every paycheck.

How much? Start by looking at your paycheck. How much gets deposited into your bank account when you are paid? Whatever the number is, move the decimal point one place to the left. If your typical deposit is $657 and you move the decimal point one place to the left, you get $65.70. That’s 10 percent. Start by saving that much every time you get paid.

10 percent savings is more than the average U.S. savings rate in May of 2019. That rate was 6.1 percent according to data from the U.S. Bureau of Economic Analysis.

Where should I put the money I save? Put money in a savings account at the bank until you have enough saved to cover six months’ worth of bills.

After that, participate in the retirement savings plan at work. At this point, you want to try to save more. Experts debate what rate of savings is enough to meet your needs, but they all agree that the longer you wait to start saving, the higher the savings rate you need to hit your goal. Target 20 percent of your earnings for retirement savings. Retirement savings plans at work are great for a few reasons:

They are automatic, so you make the choice to participate one time and the savings happens every time you get paid.

Since contributions are made as part of the payroll process, you save for retirement before you even see the money, so it’s painless.

Often, company retirement plans include matching money from the employer. Typically, this amounts to about 4 percent of your gross earnings. As long as you save at least that much, the company often matches dollar-for-dollar up to the 4 percent limit. This is free money, a great deal.

4. Control your spending. For most families, it’s really hard to save as much as I mentioned above. In order to save more, you need to spend less. Yes, it helps to track your spending. This allows you to compare where your money really goes with where you want your money to go. But even without knowing anything else about your budget, I can tell you a pretty easy way to find meaningful savings:

Housing and transportation make up almost 40 percent of the average American family’s spending. The average American spent 26.2 percent of gross income on housing as of June 2018, according to the Bureau of Labor Statistics. The same data shows 12.7 percent spend on cars and other transportation. If you can reduce your rent or mortgage payment and trade to a cheaper car, you might be able to come up with an extra 10 percent of your income that is available to save.

If you can master these four points, you have accomplished more than about 90 percent of the American public, so congratulations. You have put yourself in a great position to achieve your financial goals.

If you are ready to take things to the next level, you will want some advice on risk protection strategies, investing, taxes, retirement planning and estate planning. When you start looking for that kind of help, you might want to talk with a CERTIFIED FINANCIAL PLANNER™ professional.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

• Is the advisor always the client’s advocate – a fiduciary advisor?
• Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-only, CFP® professional can help you develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.