10 Keys to Building and Maintaining Wealth

At HFG Trust, we have the opportunity to assist clients of all ages, some of whom are several years away from retirement.  Our younger clientele and children of clients generally come to us with questions about how to maximize their wealth-building opportunities.  Our recommendations are not new and have been suggested by people spanning decades – from financial gurus to grandmothers.  For those of you who are several years from retirement, we hope these are helpful suggestions.  If this article brings someone to mind, feel free to forward it to them.  We would also be happy to answer any personal questions they or you may have about a specific situation.

1. Live below your means

The greatest chance for attaining wealth is to spend much less than you earn.  The greater the difference between your income and your spending, the quicker you will accumulate wealth to achieve your financial goals.  For example: if your annual household income is $100,000 and you spend $95,000 on taxes, housing, insurance, vacations, cars, etc., it will take you twice as long to accomplish your wealth accumulation goal compared to spending $90,000 each year.  This is a difference of saving $10,000 versus $5,000 each year.  The additional savings of $5,000, or 5% of gross income, will make a significant impact over time.

2. Pay off debt as quickly as possible

The interest expense and monthly debt payment requirement prohibits building a solid foundation of capital and financial strength.  Remember, the goal is to spend less than you earn.  If you are stuck paying monthly debt payments and interest charges, it will delay your goal of building a savings or retirement account.

3. Be a great employee, work hard, and enjoy your work

Being a great employee includes working well with co-workers and your boss.  The more you enjoy your workplace or career, the less pressure you will feel to retire when getting close to “retirement age”, and if you need to work an extra year or so, it will not be as burdensome. 

4. Make long-term buying decisions.

Buying and selling homes, cars, boats, and RVs every few years is costly due to the expenses on each side of a transaction – sales taxes, sales charges or commissions, loan fees, excise taxes, etc.  The more often you replace each item, the more you will pay over time.  Some people advocate buying only used cars to avoid heavy depreciation in the early years.  If you do buy new, keep it for several years. 

5. Don’t live in a high-status high-consumption neighborhood

 Keeping up with the Joneses down the street or on Facebook is financially detrimental.  It is easy to compare our house, cars, and life events to others in the neighborhood.  What you do not see is the financial stress they may be in because of those purchases.  See #6.

6. Choose contentment

Understand the difference between happiness and contentment.  Contentment is not found in having what you want, but in wanting what you have.  If having more things makes you happy, you will never find true contentment because there is no limit to the things we can want.  No matter what your income, it can all be spent on stuff that does not grow wealth; cars, boats, vacations, motorhomes, bigger boats, and household items are examples of things that prevent wealth accumulation.  I am amazed each time I hear of a highly paid athlete or lottery winner who “loses” their wealth.  They did not lose it, they spent it all.  One of the primary issues has to do with contentment.  (They also did not follow this valuable list of “10 Keys to Building and Maintaining Wealth”.) Contentment is a virtue that will help you attain and maintain wealth.  If you are not content, then you may need to grow a backbone and learn to say “no” or find a way to appreciate what you have.

7. Minimize your taxable income

People are taxed mostly on income.  One way to minimize your taxable income is by maximizing your retirement savings.  Whether you are reducing your tax liability today with a pre-tax contribution or future tax with a Roth IRA, make wise tax planning decisions. 

8. Your home is not an investment

Don’t let people tell you that your house is the biggest “investment” you will ever make.  Don’t get me wrong: homes are valuable personally and monetarily, but they do not produce a stream of income payments.  Your home may be where your heart is, but it will not provide you with supplemental retirement income.  Homes actually deplete resources and cash flow as we make repairs, updates, and replacements every few years.  Alternatively, stocks (companies) pay dividend income, bonds pay interest income, and investment real estate pays rental income. 

9. Convert non-income producing assets or cash payments into investment assets

The better we are at converting our cash flow into investments and income producing assets, the greater chance we have of accumulating the needed resources to accomplish our financial goals.  Coffee usually gets a bad rap, but it is just an example.  Buying a $5 coffee every day equals $150 per month that could have been saved or invested in Starbucks stock (for example). 

10. Make wise long-term investment decisions

Investment portfolios have a timeline that often span several decades.  If you are 40 years of age, you should expect your portfolio to be around until you die – potentially until age 90 or more.  That is a timeline of 50 years, with approximately 25-30 of those years occurring after retirement starts.  Seek wise council about selecting an investment allocation that will weather the ups and downs of the market, is consistent with your tolerance for risk, and will afford your distribution needs.

There are many other items that could have been included, but these are the 10 that made the list.  We hope this helps you as you consider the important factors that will help your family build and maintain wealth.

Stephen Palm, CFP®