So you’ve heard the term wealth management, but you’re really not sure what it means. While wealth management can encompass many aspects of having a well rounded financial plan, how does a person go about starting a plan?
Let’s discuss the fundamentals of a financial plan and how to actually create a budget. After all, the US household consumer debt profile shows that the average credit card debt is around $15,600, the average mortgage debt is around $155,000 and the average student loan debt is around $32,000.
Wealth Management Solutions
So let’s take a look at why we get into debt and how we can avoid that for the future, not only for ourselves but for future generations as well. Most people get into debt because they either want something they can’t afford, or they get trapped paying for something such as an unexpected cost that they didn’t plan for. Since they didn’t have any savings or emergency funds set aside, they usually have to use their credit cards.
Another reason why people get into debt is usually created by student loans. This debt carries on with many people well into their adult years as more debt builds up as they’re trying to build up not only their life but a family life as well.
What if we could change the way we could change the way we look at money today? So that it wouldn’t be in debt any more for the future or for future generations and you’d never have to use a credit card or get a loan again.
It’s actually quite simple, let’s use a $1.00 bill as an example.
What if we broke $1.00 into 4 quarters? Now think of each quarter representing a different area of payment that we have throughout life. For you to take a quarter and break that up for your home bills and other living expenses. We could then take another quarter and put that into an emergency account. We’d use the third quarter for a retirement account and the fourth quarter could go on vacation or even used for major purchases.
Now, of course, we could break this down even more but at least you get to know where we’re going with this. The thing about keeping things simple and breaking up your money in a way that is understandable and always available, you will understand what you can and can’t afford before you make a purchase.
So imagine this, what if you could afford various life events such as purchasing a car, buying your home, going on that vacation you’ve always wanted to and paying for your sons or daughters college tuition, or having enough money for retirement.
A Simple Wealth Management Example
Let’s run through a quick scenario. Let’s say you start your family around 30 years old and you have a child. You can set up an investment account or college savings plan for your newborn child which you can start earning money on right away, however you put away $5,000 a year.
Now let’s say you continue putting away that $5,000 a year for the next 18 years and that investment account earns you a modest 5% interest, by the time your child reaches college, you should have $140,000 in that account just by utilizing this simple wealth management principle you just learned.
Here’s something else, let’s say you teach a youngster from the day they are born to save money the same way you have now, by the time they reach 16, let’s assume that they get their first part-time job and they’re earning around $9.50 an hour. They’re working around 20 hours a week over the next 5 years, basically to get them through college. So throughout the year, they’re making around $8,000 yearly salary.
Let’s say that they break up their money, just like how you learned how to break up your money and they break it into 4 equal parts. Let’s say they take $0.25 from every dollar they make and they put that into an emergency fund. They take another $0.25 and put that into an investment fund. Another $0.25 into activities they have during college and finally another $0.25 for their future home or other major life purchases.
So over the course of 5 years, by the time they’re 21 years old, these accounts earning the same 5% would have nearly $10,000 in each of them by the time they’re ready to graduate college. Now of course, once they do graduate college and start earning full-time salaries, these accounts will increase exponentially of course but your sons or daughter would now have a greater start on life with their savings and they will not need to have credit cards or even a loan if something were to happen.