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When most people talk about retirement and how to build wealth, they have a common goal in mind: to put aside enough money to build a retirement nest egg in hopes of making their way into the Millionaire’s Club. For those of us who are not expecting a large inheritance, or are not the beneficiary of a lucky investment, it’s important to build as much wealth as you can to last through those golden years. But even if you are able to save the ideal amount for your retirement nest egg, how can you be sure that you won’t outlive your savings? The truth is, under most traditional retirement savings plans, there’s simply no amount of precaution you can take that will completely safeguard your financial wealth and no amount of planning that can prepare you for the unexpected.
Generally, when you ask a financial advisor how to build wealth they will prescribe to the “build it up to burn it down” mentality and usually advise people to invest in growth stocks to build the desired amount of money that will be “burned” through during retirement. While many financial advisors and investors are able to produce some success in helping you build your retirement nest egg, they can’t insulate you from the mercy of the volatile stock market, rising taxes and regulations, unforeseen medical expenses and lawsuits.
That’s the problem with this strategy of building wealth solely through your retirement nest egg; you are essentially putting all of your financial eggs in one basket.
The Great Recession has taught us that the unexpected can and does happen from time to time. But what if there was a way to save enough to last through your retirement and build wealth that is impervious to outside forces? Well, there is.
Practically everyone has a savings plan for their retirement, but you also need to have a spending plan. As we transition into retirement, it’s important to remember that we are no longer building wealth but, we are instead depleting our financial reserves.
When you create your spending plan, it is important to remember that every dollar has a purpose. Without an in-depth understanding of your finances, it becomes extremely difficult to determine where you are wasting money and how much you will need to put aside to finance your retirement. Before putting money aside for retirement, you first need to know how and where your money is being spent for discretionary and nondiscretionary items. This will tell you how much is left over, and also help you identify cost-saving strategies to maximize each dollar.
One way to use your discretionary income more strategically is to look for ways to save on things you already spend money on. Paying monthly bills like cable, insurance, cell phones, rent and mortgage payments are part of practically every adult’s life. But, there are ways to save even on these bills that you’ll probably be paying the rest of your life. To reduce your monthly expenses, you may want to consider negotiating your monthly bills by presenting a reasonable (and less expensive) alternative to what you are currently paying. Surprisingly, many companies are willing to work with you to lower your monthly bills to something that works within your budget. If you are successful, you’ll save money month after month with very little effort on your part.
By budgeting how you will finance both essentials and non-essentials, you’ll not only have a better understanding of how much you will need to save for your retirement nest egg, but also grow your assets more predictably by over-saving and under-spending. When thinking about how to build wealth a spending plan may give you a false sense of financial security and you may find that you are blowing through your savings faster than you had planned.
In order to avoid this common mistake you need multiple income generators that exceed your spending habits that are both constant and predictable. And I don’t mean taking on a second job at a local coffee house. Income generators can vary from a traditional job to a real estate investment or an investment in the stock market. A real estate investment ties up a lot of capital that most people can’t afford to finance. While the stock market is volatile, there is some amount of predictability we can assume in certain business sectors like utility companies. Utility companies investments are a great wealth building option for several reasons: they’re generally stable, pay a dividend and have a somewhat inelastic demand. Regardless of how bad the economy gets, everyone will always find a way to pay their electric bills, water bills and other utilities because they are considered essential amenities. Also, the dividend payments are critically important to maintaining a steady flow of income. Stock market swings will affect the value of the stock but, even if the value of the stock drops your dividend payments will offer some security and predictability that most growth stocks do not offer.
When looking at proven strategies that can show you how to build wealth it is important to make a habit of under-spending, over-saving and growing your assets in your golden years. You will not only be able to outlive your savings, but you will build indestructible wealth that will last well beyond your lifetime.
Author bio
Paul Mata has 20 years of experience working at a Wall Street Firm as a stock broker and managing principal that led him to the conclusion that wealth is destructible by virtue of how people traditionally invest. After creating more than nine successful companies, Mata decided to establish Logos Lifetime University in 2009 to teach people the basics on how to build wealth, finance and investing and how to find a balance in life by learning how to achieve financial, physical, mental, social and spiritual health. Author of the book Indestructible Wealth, Mata has identified seven key categories to invest in to consistently and safely receive high returns on investment.
