Wealth Building Tips from a West Chester PA Financial Planner on Investment & Asset Management

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Wealth as it is traditionally defined is "an abundance of valuable material possessions or resources". Now, wealth can take many forms and mean different things for different people. Examine your current circumstances and you will be surprised to find an abundance of wealth in many areas, whether it is the relationship with your spouse and children, the roof over your head, or perhaps a career that brings a sense of contribution. For our purposes, we are concerned with financial wealth or the abundance of monetary resources.

So what are among the top strategies to help you achieve this abundance? In my opinion, wealth building can really be broken down into two simple steps: define what financial wealth means to you and implement the mechanics to achieve your goal. That´s it! What most people fail to realize is that defining wealth is an important part of the process. This is because wealth or the feeling of wealth is an emotional connection. You probably will not feel wealthy unless you know what it means for you. When you define wealth on a personal level, it not only gives you a goal, but more importantly it establishes the psychological significance and satisfaction that comes with achieving it. This brings us to the second part of wealth building or the mechanics, which are actually quite simple. So let´s begin and put a wealth-building plan into action.

So what does financial wealth mean to you? Is it $500,000, $1,000,000 or would your definition of wealth mean an extra $10,000 a year for a vacation? Whatever your goal may be you need to define it and put it into perspective. So what are the mechanics or strategies you should implement? Well, they are fairly straightforward and only require 3 simple steps:

Steps to Help Build Wealth:

1. Take a personal inventory of Assets vs. Liabilities

2. Develop a budget and start saving.

3. Be patient and let compounding do the heavy lifting.

Start by taking an inventory of your assets and liabilities or what you have vs. what you owe. If you owe sizable amounts of consumer debt like credit cards or personal loans, then focus on eliminating these first. Eliminating consumer debt has a twofold advantage because it increases your monthly cash flow, which can be directed toward savings and stops sabotaging your investment returns by the high interest rate you are simultaneously paying to the lender. There is nothing worse than making an 8% return on your investments, while paying 19% on your credit card.

Next, you need to get a sense of where your money is going and how much you have available to save. A budget will help you identify excesses and allow you to determine what you can save towards your goal. Saving is essential in wealth building because even small contributions can make a dramatic difference over time. Consider this hypothetical example, let´s say you have a goal of saving $100,000 and you are starting with $10,000. An 8% annual return will allow you to reach your goal in about 30 years. However, if you save just $200 per month you will reach your goal in less than 15 years or 1/2 the time. This is proof that savings over time do add up (see disclosure).

The final wealth building tip is the simplest to execute because it does not require action on your part, and that is to be patient. Compound interest is one of the biggest contributors to building wealth over time, but its power is not apparent when you are just starting out. If you earn 8% on $10,000, an $800 gain may not see like much. However, apply that same 8% gain to $100,000 and you get $8,000 or 10 times as much. What is so special about this is that it required no more effort on your part to make $8,000 as it did to make $800.

So building wealth is really not that difficult and the steps to accomplish it are not complicated. You must define what wealth is for you and then apply the mechanics. You should also consider enlisting the help of a professional advisor. An Advisor can help you refine your definition of wealth and implement a realistic plan to accomplish it. An advisor is also indispensable because they can keep you motivated, adapt to changes, and more importantly, advise you beyond the accomplishment of your goal.

Sources:

Merriam-Webster Dictionary, www.merriam-webster.com/dictionary/wealth

Disclosure:

All illustrations and scenarios provided in this article are strictly hypothetical. The situations, assumptions, and rates of return are used merely for illustrative purposes. Actual returns may vary substantially from what was assumed and depends on each investors risk tolerance, investment profile and market conditions.

This article meant for general illustration and/or informational purposes only. The views expressed are those of the author and are not necessarily the opinion of Royal Alliance Associates, Inc.

This material should not be relied upon as investment advice. Investors should seek the advice of their financial advisor prior to making any changes to their investment strategy or purchasing any securities. Investors should note that there are risks inherent in all investments, such as fluctuations in investment principal. Past performance of any market, index, investment or strategy cannot be relied upon as a guarantee of future results. This article contains forward-looking statements and projections. There are no guarantees that these results will be achieved. Due to volatility within the markets mentioned, opinions are subject to change without notice. Investing is subject to risks including loss of principal invested.

Securities and Advisory Services Offered through Royal Alliance Associates, Inc. Member FINRA/SIPC.

Advisory services offered through Key Financial, Inc.

A Registered Investment Advisor not affiliated with Royal Alliance.

1560 McDaniel Drive, West Chester, PA 19380

E-mail: pbrennan@keyfinancialinc.com, Phone: 610-429-9050

For more information, please visit www.keyfinancialinc.com.