Family Wealth Management: Build It Yourself
Let’s talk about ways to build and keep family wealth for you and the kids
Building family wealth is a wonderful goal that many of us aspire to achieve.
It may seem like a daunting task at times, but with the right principles and strategies in place, it becomes a realistic and achievable objective. The key is to approach it with a long-term perspective, patience, and discipline.
In this post, we will explore some friendly and easy-to-understand principles that can help you build and preserve wealth for your family.
We will look at the following topics in this 5 minute read:
Thinking critically about earning money
Setting goals and developing a plan
Learn how to save money and invest
Learn how to manage debt and protect you assets
Let’s get started!
Thinking critically about earning money
The first step towards building family wealth is to start earning money. This may sound obvious, but it's essential to lay a solid foundation.
There are three primary ways of earning money: a traditional job (earned income), entrepreneurship (earned income), and investing (also called passive income).
It's important to focus on building your earned income initially to have enough to start investing later.
When considering your career path or entrepreneurship, ask yourself these questions:
What do you enjoy? Finding a way to earn money in a way that aligns with your passions and interests can lead to long-term success and satisfaction.
What are you good at? Identify your strengths and skills and think about how you can use them to earn a living.
What will pay well? Research careers that not only match your interests but also offer financial stability and growth opportunities. The U.S. Bureau of Labor Statistics provides useful information on salary ranges and industry prospects.
How do you get there? Look into the education, training, and experience required for your chosen path. Gathering this knowledge will help you plan your path effectively.
Investing in your education and skills is a great way to maximize your earning potential. Pursuing advanced degrees, industry-specific certifications, and training programs can enhance your human capital and open doors to higher-paying opportunities.
One side note here is that everything doesn’t have to be all or nothing. You can and should test out multiple ways and paths of earning income and see how it fits in with the life you want to live. There is no one right answer here. Lastly, don’t be afraid to fail along the way.
Setting goals and developing a plan
Once you start earning money, it's important to set clear goals for your family's financial future.
Take some time to envision what you want to achieve with your wealth. Do you want to retire comfortably, fund your children's education, buy a second home, or support charitable causes? Setting specific goals helps you stay focused and motivated.
When it comes to setting goals we would practice the following:
Write them down clearly. Countless research shows that writing down your goals will make you more able to achieve them. Look at them every day and remind yourself why you are doing it.
Chart out a path to get there. People don’t climb a mountain all in one day. Break down your 5,10,20,30 year goals into years, quarters, months, or weeks to make tasks more managable. Remember, just trying to make progress toward your goal each day is the objective (and don’t forget to celebrate the little wins along the way!).
Visualize achieving your goals. Visualization is another important practice that successful people use. The more you can see yourself achieving your goals, the more likely it is to mold the behavior needed to meet them.
Don’t let negative self talk drag you down. Learn how to deal with your emotions and remind yourself constantly that this is a marathon and not a sprint. You will get there!
Learn how to save money and invest
Saving money is a crucial aspect of building family wealth.
It's not just about making money; it's also about managing your expenses and setting aside a portion for the future.
Start by tracking your spending for at least a month, noting down every expenditure. This will help you identify areas where you can cut back on unnecessary expenses (you can use our free budget template).
Differentiate between needs and wants, prioritizing essential expenses such as housing, food, and healthcare. Set a savings goal based on your income and stick to it.
While it's essential to save, remember to reward yourself occasionally within reason. Automating your savings by setting up automatic transfers from your paycheck or utilizing employer-sponsored retirement plans can make saving easier and more consistent.
Lastly, don’t forget to teach the kids. Involving them early in fun things like a family savings challenge can help them model the important new behavioral habits that you are building.
Now, saving money is a great start, but to build substantial family wealth, you need to invest your savings wisely.
While keeping your money in a savings account is safe, the returns are often minimal. Investing allows your money to grow and outpace inflation over time.
Understand that investments carry varying levels of risk. Generally, higher returns come with higher risks.
Stocks, for example, offer the potential for higher returns but also come with greater volatility. Bonds, on the other hand, are generally considered safer but offer lower returns. It's crucial to assess your risk tolerance and invest accordingly.
Diversification is a key concept in investing and should be followed by most people. Spread your investments across different types of assets to mitigate risk. However, if you want to research in invest in things like individual stocks yourself, this is how professional investors break down a stock.
Consider consulting with a financial advisor who can guide you based on your goals, risk tolerance, and time horizon. They can help you create a well-diversified investment portfolio that aligns with your objectives.
Additionally, educating yourself about different investment options and staying updated on market trends can empower you to make informed decisions.
Remember, investing is a long-term endeavor. It's important to resist the temptation to make impulsive decisions based on short-term market fluctuations. Instead, focus on the fundamentals of your investments and their potential for long-term growth.
Learn how to manage debt and protect you assets
Building wealth requires managing debt effectively. High-interest debts, such as credit card debt, can significantly hinder your progress.
Prioritize paying off high-interest debts as soon as possible to avoid accruing unnecessary interest payments.
Create a debt repayment plan and allocate extra funds towards reducing your outstanding balances.
However, not all debts are bad. Low-interest debts, such as a mortgage or student loans, can be manageable and even beneficial in certain circumstances.
Evaluate the terms and interest rates of your debts and determine if it makes more sense to invest your excess funds or pay off the debt faster.
Lastly, safeguarding your wealth is just as important as building it. Implement risk management strategies to protect your assets from unforeseen events.
This includes having adequate insurance coverage, such as health insurance, life insurance, homeowner's or renter's insurance, and disability insurance.
Estate planning is another crucial aspect of asset protection. Create a will to ensure that your assets are distributed according to your wishes in the event of your passing. Consider establishing a trust to provide for your family's financial security and minimize estate taxes.
Regularly review your insurance coverage and estate planning documents to ensure they align with your current situation and goals.
Final Thoughts…
Building family wealth is a collective effort. Educate your family members about financial literacy and involve them in discussions about financial goals, budgeting, and investing.
Teach your children about the value of money, saving, and responsible spending from an early age. Instilling good financial habits in your family members can set them up for a lifetime of financial well-being.
Additionally, consider seeking professional advice from financial planners or attorneys experienced in multi-generational wealth management. They can help you develop strategies for passing on wealth to future generations while minimizing taxes and preserving family values.
Remember, building family wealth is a journey that requires commitment, discipline, and adaptability. By following these principles and regularly reassessing your strategies, you can work towards creating a strong financial foundation for your family's future.
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