Acquiring & Keeping Long-Term Wealth

by John Mugarian

Establish A Financial Plan

Setting goals and establishing a comprehensive financial plan is the starting point to acquiring and keeping long-term wealth. Before you begin setting goals, it is important to know where you are, so you can determine where you need to be. We do this by analyzing our current financial situation, set goals for the future, ad make adjustments in our lifestyles to allow our goals to become a reality.

The secrets to acquiring and keeping wealth do not begin and end with the stock market. The stock market is only one of many strategies we use to accomplish our objectives. A solid financial plan not only prepares us for our retirement years, but makes life more rewarding during our working years. Retirement for some could last 30 years or more, and during this time you can expect to see market cycles of varying degrees. You can plan now and be prepared for whatever comes your way, or you can do nothing and be subject to a life of uncertainty.

Building a Financial Plan - Current Situation

a) Balance Sheet: Assets – Liabilities = Networth

b) Setting goals: After completing and accessing your current situation, you can begin setting goals toward reducing your debt and saving for retirement. By reducing and eliminating debt, you can build your net worth more rapidly. The less debt you have, the more you can invest for the future.

c) Implementing a plan: Using a retirement planer from a source like Quicken, you can complete this evaluation in about ten minutes. It’s easy, quick and comprehensive. By completing these three simple steps, you’ll be on your way to acquiring long-term wealth.

2. Self-discipline: The best advice in the world will not help you if you are not willing to help yourself. Acquiring and keeping long-term wealth requires focus and steadfast discipline. What you need to realize is the steps you take will have a direct impact on your financial future not only now, but many years down the road.

If buying a new Toyota Sequoia is more important to you than paying off a credit card debt, then you have to live with the consequences of that decision. If keeping up with the Jones’ and portraying an image of luxury is more important to you than acquiring financial freedom, you’ll have to accept responsibility for that decision.

Acquiring and maintaining long-term wealth is a process. There is no immediate gratification. But the rewards over time are well beyond the thrills of instant gratification. The satisfaction of knowing you have control over your own life will far outweigh the agony of knowing you don’t.

Once you establish your financial plan, let it be your gyroscope. With a good financial plan and a little self-discipline, you will be well on your way to making your financial dreams a reality.

Spend Less Than You Make

This sounds simple enough, but actually it’s the toughest to do. The “Keeping Up With the Jones’” philosophy is more prevalent in our society than ever before. What these people fail to realize is this mentality will prevent them from achieving financial independence. Unfortunately, people have been indoctrinated by TV and newspapers with the belief that people who have money live lavish lifestyles. This may be true for the mega rich, but it certainly isn’t rue for the millionaires you don’t know.

Would it shock you if I told you I know people who make $50,000 who have larger net worth’s than people who make $500,000. It’s true. Often, people who make larger incomes like doctors, also have higher debt payments. The more money they make, the more debt they incur. This translates into a negative net worth. On the other hand, the person making $50,000 realizes their income potential is somewhat limited. They live below their means, pay down their mortgages and build toward a positive net worth.

Instant gratification can rob you of an early retirement and a comfortable lifestyle down the road. So the next time you’re tempted to keep up with the Jones’, go visit a retiree trailer park, because that’s where you might end up.

Pay Yourself First

Every month you sit down and pay bills, or have your bills electronically paid from your checking account. You pay your mortgage, utility bills, car payment, insurance, and credit cards. Are all these payments more important than paying yourself?

Each and every month, get into the habit of paying yourself first. Open a savings account or a mutual fund with the understanding that the deposits in this account are like making a car payment. Under no circumstances is this money to be touched until retirement. If you do, remember you are robbing yourself. Treat the payments to yourself like a bill. Pay it, forget about it, act like it’s not even yours.

Reduce & Eliminate Debt

Would you like to have a small taste of financial independence before retirement? Then eliminate all debt. At age 34, I was organizing our filing cabinet and ran across the amortization table for my home. Never seeing the schedule before, I quickly realized what it was and called for my wife who was a banker. In disbelief, I asked her “Am I reading this right?” I quickly became very angry at the fact that I would have to pay $256,313 in interest on a 30-year loan, and I only borrowed $139,900. That means after 30 years, I would end up paying $396,213 for a $139,900 home.

As I began to dissect the calculations event further, I took into account that the average person only lives in a home 13 years before purchasing another. Calculating my equity 13 years our made me even angrier. At the end of 13 years, I would have made $171,600 in payments of which $148,444 was interest. That meant after paying in $171,600, I only had $23,156 in equity and still owed $116,744 on a $139,900 loan. I quickly went to work toward “burning my mortgage”. By age 40, the house was mine, and still today I look at debt as an abomination.

The bottom line here is, work to eliminate debt. This includes credit cards, lines of credit and car payments. You’ll be able to accumulate wealth a lot quicker if you’re not making someone else rich first.

Keep Your Family Intact

Money is one of the leading causes of arguments and disruptions within families. When implementing a financial plan, it’s not uncommon for couples to have conflicting priorities when it comes to money. Divorce experts agree that money is the one thing couples argue about most, followed by children. But, there is a lot of reason to believe that the content of what couples argue about is not as damaging as how they argue.

If acquiring and keeping long-term wealth is really important to you, then involving your spouse in the planning process really makes sense. If one spouse wants to grow wealth and the other is interested in keeping up with the Jones’, you are going to have serious problems. Couples must agree and work toward a mutual goal. Without a mutual agreement, struggles will occur, and sound investment decisions suffer.

The financial impact of divorce on a person’s net worth can be devastating. Not to mention the effects on the family unit and children. Recovering from a divorce when children are involved may take years if it occurs at all. It’s important for couples to agree on a plan, and work together as a team when pursuing financial goals. Sure, to mutually agree, there has to be compromise. But compromise beats total financial ruin hands down.

If you are not married and have accumulated a substantial net worth, then by all means protect yourself with a prenuptial agreement before you tie the knot. It has often been said that love is blind. Well believe me, money is not.