When most of us think about finances, our minds tend to go straight to the here and now. We think about the bills we need to pay, the next vacation we want to save for, or maybe planning for retirement. But true wealth management is about a lot more than working toward everyday goals like these.
It’s also about creating a firm financial foundation that takes care of you today, as well as benefits your loved ones after you’re gone. In this introduction to smart financial planning, we’ll go over everything you need to know about building a foundation in ever-changing times.
Understanding Financial Basics
Any airtight wealth preservation strategy starts with getting a handle on the basics first. Think setting and following a budget, building savings, and learning the ropes when it comes to investing. Learning to manage money wisely now is the key to successfully building generational wealth for the future.
The importance of budgeting
Most people think of a budget as a monthly spreadsheet to keep spending in check, but it’s actually much more than that. A budget is also a financial blueprint. It makes you fully aware of how much money you have coming in (and from where) and where it’s really going.
Your budget also helps you see where you can make adjustments that benefit your long-term financial planning goals. You can get started by:
- Tracking your income and expenses
- Categorizing your expenses (e.g., food, utilities, or housing)
- Identifying opportunities to reduce costs
There are two key pillars involved in long-term wealth management – making sure you’re living within your means and freeing up cash to either save or invest. A solid budget helps you master both.
Saving for the future
Once you’ve got your budget squared away, it’s time to set some savings goals. This should involve a mixture of short-term goals (like a down payment for a house or an emergency fund) and long-term goals (like retirement or your child’s college fund).
A good rule of thumb is to shoot for saving about 20 percent of your income, if possible. Here are some pointers for accomplishing this:
- Leverage tools like savings apps and direct deposit to make it easier to stay on track
- Look into options like IRAs, 529 plans, and high-yield savings accounts to build wealth with minimal effort
Not only do options like these put you in control of your finances and keep you there, but they also support good habits that lead to serious long-term financial success.
Investing wisely
Investing is the next step toward lasting wealth. Stocks, bonds, and 401(k)s ensure the money you have is working as hard as possible for you. And the sooner you start, the better, so don’t sleep on early career investing.
Understanding your tolerance for risk (and how it correlates to age) is a key part of establishing the right investment strategies. Younger investors can generally afford to take on more risk in exchange for greater potential returns, while those closer to retirement might want to lean more toward stability.
Diversification – the practice of spreading your investments across multiple asset types – is another important way to minimize risk while maximizing the potential return on your original investment.
Preserving Wealth for Future Generations
Building wealth is goal number one when it comes to excellent financial management. The rest is all about making sure your wealth changes hands from one generation to the next in a way that’s responsible and tax-efficient.
Estate planning essentials
Estate planning ensures your assets are distributed and managed according to your wishes after you’ve passed on. This is as much about protecting your loved ones from legal headaches and potential conflicts as it is anything else.
Key aspects of thorough estate planning include:
- Creating a will
- Establishing trusts
- Naming beneficiaries
Without taking care of these factors, your estate may go through probate instead, a process that’s not only lengthy but expensive.
Setting up wills and trusts
A will is a legal document that dictates who receives your assets and manages your estate after your death. A trust is a flexible tool that covers how and when each asset will be distributed. Trusts can bypass probate, protect assets from creditors, and offer important privacy.
Together, a trust and will form a structured estate plan with plenty of protection and control baked right in.
Minimizing taxes
Taxation is a massive threat to generational wealth, so it’s important to plan carefully. Here are a few smart strategies for keeping taxation to a minimum:
- Gifting some of your wealth to recipients during your lifetime, which can be done tax-free up to certain amounts
- Establishing irrevocable trusts to help move assets out of your taxable estate
- Using tax-advantaged accounts like IRAs or 529 plans to grow wealth while lowering tax liability
- Lowering estate taxes by donating to charity
Taking Control of Your Financial Life
Never make the mistake of thinking financial planning and wealth building are only for the ultra-rich. They’re for anyone interested in creating security for themselves, as well as for those they care about most. However, everyone is different as far as what this might look like to them.
Start by considering your personal values. Maybe you want to send your grandchildren to college or keep the real estate you own within the family. A well-planned financial strategy can make sure these things happen, and professional financial planners can help.
Ready to take the first step toward the financial security you deserve? Contact MyStages® today to schedule a consultation and create a custom wealth plan that aligns with your ideal future.
