In our journey towards prosperity, we encounter numerous adversaries. These adversaries can rapidly deplete your wealth, often faster than you can accumulate it.
Adversary #1: Absence of Planning and Discipline
Without a systematic approach to financial decision-making and the discipline to stick to it, wealth accumulation becomes a daunting task. Every decision we make, from choosing an investment to deciding where to dine, has financial implications.
The next step is to implement the three-bucket cash flow system.
Lifestyle Account: This is where you pay your bills. Only the amount allocated for lifestyle expenses in your budget should go in, and any surplus at the end of the month can be transferred to the Planning account or used for leisure.
What Goes In: Only the amount that you have arrived in your budget as a lifestyle account.
What Goes Out: This is an account where you pay all your bills. It should not include your retirement plan contributions, IRA contributions, contributions towards your cash-value life insurance, investment accounts, or any type of savings or planning. If after the spending, there is money left at the end of the month, it can either be transferred to the Planning account, or you can go have some fun.
Planning Account: This is where all your planning takes place.
What Goes In: Paychecks over what your lifestyle is or any money you receive more than what’s needed for your lifestyle.
What Goes Out: All your future retirement planning, education and retirement assets, and and quarterly monitoring is meaningless.
Wage Account (Emergency Account): This account holds your emergency funds, equivalent to six months of wages. You need to title your emergency account as a Wage account as Wages of up to six months cannot be garnished from creditors (with some exceptions).
What Goes In: Direct Deposit of your paychecks or your net pay-check
What Goes Out: Only transfers to your Lifestyle and Planning account.
Planning for security against these enemies of wealth is a foundation to being wealthy (Wealth + SecuritY = WealthY). The alphabet “y” in wealthy comes when your wealth is secured from these seven enemies and you can call your own.
Adversary #2: Debt
Debt is often misunderstood. Some advocate for a debt-free life, while others see the benefits of leveraging debt. The key is understanding the two key rules below:
• Rule # 1: Debt to Liquidity Ratio: At a minimum, you should maintain at least 10 percent liquidity to debt, and 25 percent is excellent.
• Rule # 2: Differentiating Good Debt and Bad Debt: Good Debt is debt where it is in the single digits and after taking a tax deduction on the interest, you are between 5-7 percent of net interest, if rule # 1 of liquidity is followed.
Adversary #3: Taxes:
Minimizing tax liability is crucial. To ensure you’re paying the least necessary tax, work with a team of professionals, including a Certified Public Accountant, Independent Third-Party Administrator, Attorneys, Independent Insurance agents, Benefits Experts, and Independent Financial Advisors.
Adversary #4: Unexpected Events:
Life is unpredictable, and unexpected events can turn your world upside down. Having the right knowledgeable team can often help you structure creative strategies on how to pay for the insurance, resulting in a net low or even zero out-of-pocket cost for the insurance.
Adversary #5: Losses:
The best way to increase your wealth is to minimize losses. Understanding market cycles and having a diversified investment portfolio can help mitigate risks.Also, someone shouldn’t put their foundational retirement assets and education funding assets at very high risk.
• Rule # 1: Answer the following question: What is the monthly income I would want to have if I were at my desired retirement age today and what funds need to be set aside for education?
• Rule # 2: Past Performance is neither an indication nor a guarantee of future results: The selection of mutual funds should be based on fees, portfolio manager tenure, asset allocation, turnover ratio, and history that goes for a long time, 10 years is good and beyond 25 years along with a portfolio manager tenure of 20 years or more is great.
• Rule # 3: Asset Allocation is the key and diversification is for the uneducated. You could be diversified and yet not have proper asset allocation. You may even have repetition of the same type of holdings in different funds or even the same stocks or bonds in different funds.
Adversary #6: Lawsuits
Protecting your assets from lawsuits is crucial. Work with a good attorney to devise the best asset protection plan for your needs. In addition, getting a second opinion is as important.
Adversary #7: Unintended Heirs & Separation:
Legacy planning is important to ensure your assets go to the intended beneficiaries. Also, maintaining a happy and lasting marital relationship is crucial as separation can lead to a split of assets.
Separation: Divorce is worse than Death. So, it is very important to first work towards making sure you have a very happy and ever-lasting marital relationship. If the inevitable must happen, most of the time the assets get split right down the middle.
In conclusion, understanding and addressing these seven adversaries can help safeguard your wealth and ensure a prosperous future. Remember, the journey to wealth requires planning, discipline, and constant vigilance against these adversaries.