Sunday, May 9

You Need To Transition From Wealth Creation To Wealth Preservation

We all face financial struggles unique to our circumstances and some much more than others, but if there’s one thing we all share in common, it’s the willpower and determination to set ourselves up for a beautiful future of financial freedom and responsibility. As a result, we’ve seen personal finance and financial awareness grow rapidly in recent years, and the global pandemic has only strengthened and further emphasized the need for being smart with money.

However, while a large majority of people are now gritting their teeth and putting in the work to create their wealth, we can still observe a major issue; most don’t know how to keep it. And, because of this lack of knowledge on wealth preservation, many fail to go over the wall and transition to a more long-term approach. So, today we’ll be going over the need to transition from wealth creation to wealth preservation and how you can adopt these habits and principles into your own circumstances.

When Should I Make The Switch?

Of course, before we can move to wealth preservation, there are three boxes that you need to check off your list first. Namely, these three financial concepts are debt, an emergency fund, and a grasp of your monthly budget. Only after you master these three can you effectively make the switch from wealth creation to wealth preservation. 

  • You No Longer Have Any Outstanding Debt: Many individuals, especially those fresh out of college, presently carry obligations and all kinds of debt before stepping into the harsh and ruthless nature of the real world. And, before you can even consider adopting wealth preservation habits, it is necessary that you no longer have any outstanding debt to prevent anything from weighing you down.
  • You’ve Managed To Save An Emergency Fund: Emergencies happen, and we have no control of what may come about in the world, such as the global pandemic. Therefore, it is imperative to your financial success that you’ve managed to save an emergency fund that can at least guarantee you financial security worth three to five months of your expenses. This emergency fund acts as your safety cushion, and you’ll need it for wealth preservation.
  • You Know The Ins And Outs Of Your Monthly Expenses: It is those that actively plan and know the ins and outs of their monthly expenses that know best their cashflows and the necessity of a strict budget. One cannot simply step over into wealth preservation without understanding the extent of their expenditures and have control over their spending habits. So, it is necessary to know your monthly expenses before considering wealth preservation.

How Do I Begin My Wealth Preservation Journey?

If you have all those boxes checked off your list, your next goal is to adopt these four essential habits that will preserve your wealth for the long term. Of course, these are but general advice, so feel free to configure and tailor them that best apply to your state and available financial instruments at your disposal. 

#1 Work Your Way To 15% Of Income Put To Investing

Number one, now that you’ve squared off your debts and have savings to fall back on, you’re next manner of business is to allocate 15% of your annual income to investing. Use dollar-cost averaging to your advantage and think not of what you make now but the income that you accrue and accumulate over the next 40 years. Soon enough, your dividends, 401K, and Roth IRA will cover all of your living expenses. 

#2 Understand The Risks Behind Your Personal Finance Plan

Number two, use the opportunity to lower your risk appetite and playing on the more defensive end of the financial circle. While there’s nothing wrong with taking risks, you’re much better off in the long run when you take more planned steps and less aggressive approaches to wealth. Bide your time and understand the risks behind your personal finance plan. You must work around them and let every advantage play to your favor. 

#3 Know Where To Get Immediate Liquid Cash When Necessary

Number three, you must practice prudence and know where to get immediate liquid cash when necessary. Arrogance and boastfulness will get you nowhere, and it’s always much better to be prepared for the worst than to be caught off guard without anything to your name. From liquidating stock investments to applying for reverse mortgage loans on home equity, it doesn’t hurt to know all your options. 

Secure Your Future

Life is quite the rollercoaster, but we must understand the importance of financial responsibility despite the blinding lights and flashy lifestyles that online media often portrays. So, learn from the guidelines mentioned above and apply them to your own life. Secure yourself a future of financial freedom and share this newfound knowledge with others.