Wealth Management Isn't Just for the Rich - The Secrets to Retiring in Luxury

How do you think about money? Is it the goal of your efforts, or is it a tool that you wield to achieve your dreams? The way we think about money can impact how we use it and, also, how we make more of it. Assets can be sacrificed for short-term goals or needs, but those decisions about how to allocate assets end up having a larger impact on your future income, simply because those assets haven’t been growing. Your money mindset needs to be greater than just the immediate financial concerns of paying rent and caring for your living expenses and current needs.

When you get your paycheck, how do you allocate it? For so many, the process goes something like this: I have $1,000. I need to pay these bills, and I want to go do this activity or buy this product. I have just enough. Notice that the line of thinking didn’t include any money being added to your savings or your investment account. Or, if you did, it was out of the money left over after all the other items were paid for first.

What you did was a common mistake. You paid yourself last, or not at all. That means you just missed out on critical interest. Your money can’t grow if you never put it to work. Think of yourself as a bill collector, one that can cut off something fun or necessary to your life. You always make sure that bill gets paid because you don’t want to suffer the negative consequences. Then, make sure that you rank just as highly; treat your wealth building as an important bill that must be paid every month, no matter what!

It is important to choose a percentage of your paycheck that you will put to building wealth. No matter what comes up, recognize that money is spoken for. You need to retrain your thought patterns to not see the whole check as available for bills and spending on fun and necessities. Instead, you will have to learn to adjust your expenses to that new amount. It will take a few paychecks for you to get adjusted to the idea; once you do, you will start to look at money and how you spend it very differently.

One way to help yourself change how you view your finances is to focus on your vision for your life. What do you see yourself doing in the next month, year, or five years? Are your current spending habits going to actively help you to reach those goals and achieve your vision for your life, or are they going to delay it because you have to focus on paying down debt?

Here is where a budget will help. Budgets are a great way to track your spending and get you to focus on what you are prioritizing in your financial life. Why? Because, in order to know where you are headed, you need to understand what you are doing right now and how those actions are impacting your bottom line. How are you spending money? Debit and credit cards have given us the ability to just swipe without thinking about what we are buying, or about its impact on our financial future. Click a few buttons, and the process is done. After a few days, we will have spent a considerable amount of money without even thinking about what we were buying or how it could be negatively impacting our larger goals.

Using a budget, start tracking your expenses. Track everything from your daily coffee to the taxi cab rides. This budget will cover two types of expenses: your fixed ones and your flexible ones. Fixed expenses are going to be the ones that you have every month: your cell phone, internet access, rent, utilities, and those types of items. They will always reoccur from month to month and are typically the same amount with little variance.

Flexible expenses are generally food, entertainment, and other general purchases we make throughout the day, the week, or the month. They don’t reoccur monthly and, often, these expenses can create a level of debt that requires monthly payments. This is especially true if you opt to swipe a credit card at the time of purchase.

Now, take a minute and go look in your closet. How many pieces of clothing have you purchased, which were worn only once or twice but are now just taking up space in the closet? If those items were paid for with a credit card, and you opted to make payments versus paying the entire amount off at the end of the month, then you may still be paying for clothes that you are no longer even wearing!

It is a shocking thing to contemplate, but you are not alone. Millions of others have also used credit in this way and, with the interest payments, they have paid much more than any of the items were worth! Think of how that money could have been used to move you closer to your financial goals and your vision for your life. I don’t want you to have regrets, but I want you to move forward with a different perspective. Think of your money as a tool to achieve your goals and your life’s vision. When you view your finances as a friend and not an enemy, then you can move to a whole different platform of wealth building.

Now, let’s get back to your budget. Make a list of your fixed expenses; then, spend a few days writing down any money you spend, regardless of the item or service. These items and services can be added to your budget, giving you an idea of where and how you spend your money. If you are looking for areas to reclaim money to pay off your biggest bill collector (yourself!), then start with your flexible expenses. It is amazing how quickly you can begin to reclaim cash for your own wealth building, just by reallocating your flexible expenses.

At the same time, it gives you a unique perspective on how you personally spend money. I have met individuals who use their flexible spending to buy items that depreciate almost immediately after being purchased, which generally means that they do not retain their value. Clothes, shoes, or even most car purchases are items that lose value once you purchase and take them home. Rarely are you able to sell your clothes or your car for what you initially paid for them. You have essentially lost money because your wealth did not increase with the purchase of these items. It may have even significantly decreased, once you factor in any interest you might have paid to finance the purchase of those items.

On the other hand, assets are critical to building wealth. Typically, assets are items that can grow in value over time, making you money and adding to your overall wealth. It can be investments, the purchase of real estate, or even your own business, just to name a few. The choices are endless, but without a knowledge of what you are investing in, then you can find yourself unable to truly make your assets grow and work for you!

The question you need to ask yourself is, “How do I spend my money?” Where is your flexible spending going? Are you funding someone else’s dream by purchasing luxury items that are not growing your net worth? When you think of it like that, you will start to make changes. The changes can often be small at first but can quickly grow.

I have talked with many individuals who, over the years, often tell me that they have little to invest in their future, but they walk into my office in the latest designer shoes, with the best handbag on the market and the hottest outfit by the designer of the hour. Are they really thinking long-term, or are they just focusing on the here and now? Don’t let your current wants sabotage your future wealth!

Start with your consumables. While that coffee every morning might be a necessity, do you have to go to the coffee shop? Or could you grab a cup at home? Once you make a few of these changes, you are freeing up cash on a weekly basis that can be allocated towards your savings. We will be using that savings to purchase assets by means of investing—but more about that later.

My point is that you need to change how you look at money to understand how to change your spending habits. Once you make those changes, you will be freeing up your capital to begin building your wealth. As you build your wealth, it can be easy to recognize that money is now available for a bigger purchase. More importantly, money will be available to allow you to reach your vision for your life, and you don’t need to wait until you retire to make that vision a reality! Instead, look at your savings and investments as the principal that you can’t touch—a foundation for your finances now and into the future. Once you treat them in that way, you will build a solid foundation for growth, which is what you want to achieve to fund your goals and dreams, both now and into your retirement.

One of the key areas in building your net worth is to create a savings specifically to address emergencies. A sudden crisis of any kind, including a layoff or medical emergency, can quickly wipe anyone out financially. Emergency funds are your financial safety net for just such instances.

Most financial experts encourage you to create an emergency savings large enough to cover six months of your living expenses. It needs to be easily accessible, so this isn’t money that should be tied up in investments where it will take longer than 24 to 48 hours to access the funds. Still, it is important to train yourself to redefine a financial emergency. That means it isn’t a new gadget or a great sale at your favorite department store. Financial emergencies are related to a temporary loss of income or a large, unexpected household...