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5 Essentials for Wealth Creation

Those not well-versed in the financial industry might think wealth creation is as simple as making money, spending less than you earn, and investing some of it carefully. However, there are thousands of paths, permutations, and pitfalls within that simple formula. 

The complexities of creating wealth and managing it can be made simple, easy, and pleasant with experienced investment advice. A rich mindset should replace a poor mindset to begin. A general financial understanding of what it takes and consistent action are required to generate prosperity and abundance. 

This reinforces the need for professional wealth management from a CERTIFIED FINANCIAL PLANNER™ in the D.C. area.

By answering important personal finance questions, you will get to define what wealth means to you and your family. 

Perhaps you seek entrepreneurial financial planning services as a full-time CEO wearing multiple hats. Whatever the case, your best interests, and financial goals will be the driving factor of investment strategies implemented by a fiduciary financial advisory firm.

The five wealth creation tips in this article can help accelerate your path toward security, financial freedom, and financial independence.

 

1. Develop Income Streams

Tom Corley, the author of Rich Habits, did a five-year study to compare the daily habits of high-net-worth and lower-earning individuals. He reports that most of the wealthy people he studied had multiple income streams, with a breakdown as follows:

  • At least three income streams: 65%
  • At least four income streams: 45%
  • Five or more income streams: 29%

These include passive income streams such as investment income and active income streams from employment or a business they work in regularly.

Multiple streams of income help build wealth and create stability. If any single source of support is interrupted or compromised, the financial impact is mitigated.

You can develop streams of income from any of the following:

  • Work Income (from employment or self-employment)
  • Business Income
  • Interest Income 
  • Dividends 
  • Rental Income
  • Capital Gains
  • Licensing or Royalty Income

Some of these income streams require investment capital (interest, dividend, rental, capital gains), while others can be developed with effort and time (work, business, licensing, or royalty). 

Even if you don’t have the investment capital to build wealth at the rate you would like, you can add income streams by following through on good ideas and applying your skills and abilities to the marketplace.

 

2. Improve Your Financial Literacy

Many intelligent, high-net-worth individuals can still improve their financial literacy. It is relatively common to succeed in a lucrative field without developing a depth of financial knowledge.

Financial literacy includes but is not limited to:

You don’t have to know everything about investing and finances to demonstrate sufficient financial literacy. A financial advisor can guide you through wealth management, risk management, and tax strategy. 

However, when you have a clear understanding of the basics, you are equipped to make sound financial decisions. Learn how to keep your long-term financial goals on track.

 

3. Don’t Skimp on Savings

Some people are natural savers, and if that’s you, great. However, watching a pool of money amass in an account is a tempting invitation for most of us.

Even many high-earners don’t have appropriate savings because we tend to want to live at or above our means. Real estate agents observe that when a client’s budget is one million dollars, they think the 1.5 or two-million-dollar homes would be perfect. When a client’s budget is ten million dollars, they want the 15-million-dollar homes. 

No matter how much we have to spend, the lifestyle right out of our reach looks tantalizing.

The discipline is to save like clockwork. Pay yourself first and put it aside in an account that you don’t look at frequently and can generally ignore; even better if it’s an interest-bearing account.

If saving is a real challenge for you, a deeper look at your spending habits might help. Apps like Inuit’s Mint.com can link up with your primary accounts to track your weekly and monthly spending and organize it by category. When it’s all clearly laid out in front of you, it’s easier to see places where you can cut back within reason.

The essential part of savings is an emergency fund. This represents three to six months of expenses in a liquid but ideally interest-bearing account. 

Some people equate savings with deprivation. 

However, if you save early and regularly, you avoid the stress of lower-income periods and set yourself up for increased financial power and flexibility. You can always include fun in your budget; however, you define it.

 

4. Compound Interest: The Power Tool of Wealth Creation

Invest $1,000 with no additional capital at 10% for five years, and your initial investment becomes $1,600.

That same small investment at the same rate for ten times as long (50 years) does not become a mere $16,000 (10 x $1,600); it grows to exceed $117,000.

Granted, not all of us have 50 years left to invest, but this simple exercise emphasizes the critical importance of investing now and regularly. Although it can vary dramatically by year, the annualized average return of the stock market is about 10%. Over time, your invested money earns you money. 

For a more detailed look at compound interest, check out this free calculator to aid in your calculations.

If you’re not already an experienced investor, you’ll want to clarify your investment risk tolerance before defining your strategy. A financial advisor in Washington, D.C., can walk you through this process. 

Investments do not provide guaranteed returns. While the market grows over time, there are periods when it declines sharply. Taking more risks than you are capable of or comfortable with can undermine your progress.

Higher-risk investments generally have more significant earning potential, but a risk-averse investor may be better off with conservative investments that grow slowly and are less prone to volatility.

 

5. Work With a Financial Advisor or Wealth Mentor

When investing in wealth advice from a professional, it’s essential to know they have a fiduciary responsibility with your best interest in mind. This type of fee-only financial planner in the D.C. area is a sound choice. You know their motivation is for you to succeed.

With any money mentor, you want someone with the experience and knowledge to guide and advise you toward your specific goals. A financial advisor serves many purposes, including:

  • Help to create boundaries so you can have the financial discipline you need
  • Act as a sounding board for decisions, future plans, and financial goals
  • Provide expert, trusted advice on all aspects of your financial and business life
  • Help you prepare for and adapt to market downswings
  • Take advantage of new opportunities in life, business, or the marketplace
  • Manage your assets while you focus on the rest of your life

 

Building Wealth Can Become Simple For You

The basic formula for creating wealth can seem simple at the forefront, but as you can see, investing your assets skillfully should be left to those who specialize in the wealth management field. Only the faithful execution of your wealth plan gets you closer to your life goals.

Although many people start the path to wealth creation with a specific lifestyle or sense of freedom in mind, the benefits of building wealth extend far beyond the individual. Sound financial habits set an excellent example for those around you. 

Creating abundance also benefits society, from the individuals you employ to the companies you support. As your legacy increases, you can directly benefit the lives of others, from family and community members to people on the other side of the globe. 

Ready to transform complex obstacles into exciting opportunities? Brown | Miller’s 3D process creates a pleasant wealth creation experience for entrepreneurs.

If you’re just getting familiar with wealth creation, call us at Brown | Miller to discuss your current wealth strategies. We look forward to having an honest conversation about where you achieve to be in the years to come.

 

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Disclaimer:
This article is intended for informational purposes only, and not to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector, or the markets generally.
The information provided in this article represents the opinions of Brown Miller Wealth Management (“BMWM”) and is expressed as of the date hereof and is subject to change. BMWM assumes no obligation to update or otherwise revise our opinions or this article. The observations and views expressed herein may be changed by BMWM at any time without notice. The information may be based on third-party information, which is deemed reliable, but its accuracy and completeness cannot be guaranteed.
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Author: Christopher W. Brown, CFP®, CIMA®

Christopher W. Brown is the Founder and Managing Principal at Brown | Miller Wealth Management.

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