It’s not what you make, but what you get to keep that matters.
Early in my career, a mentor and friend shared an idea with me, as well as my colleagues. He charged us to consider it when building strategies. He said:
“It’s not what you make, but what you get to keep that matters.”
He made this statement in the context of the devastating cost investors pay in taxes without proper guidance. Taxes may well be the biggest expense column for Americans during their lifetimes, but they aren’t the only threat to which my mentor’s comment applies.
There are four major risks that everyone should address when creating a financial plan to optimize their investing strategies. They’re easy to understand, and most financial advisors don’t bother to teach them to their clients or build strategies around them. For the time being, I won’t go into why that is. But, as far as the threats to your wealth goals go, the least I can do is introduce them.
I teach a free, Zoom masterclass on financial literacy where I go deeper, but that’s not what we’re doing today. However, if you want to reach out to secure an invite, I’ll put my social media handle below.
Since the cat is already out of the bag, I’ll start here. Savings are taxed three ways. 1. Taxable 2. Tax Deferred and 3. Tax Advantaged. You should have savings in all three categories. However, if you don’t save in the right ratios and amounts, you will certainly find yourself either paying an absurd amount of taxes when you need your money to do the most for you or you’ll be paying so much in taxes during your working years that you don’t have enough to retire comfortably or to stay comfortably retired.
Over the last 100 years, inflation has averaged about 3% annually. People hear or read those words all the time, but very few get it. So, let me use terms that aren’t purposely designed to make you glaze over. If you’re in your 20s now, you can expect that when you reach your 60s, your dollar will buy 25 percent of what it buys now if you keep the bulk of your savings in a bank. There’s a lot of fun illustrations I’d love to go into right now, but the point is that saving money in vehicles that don’t routinely outpace inflation is like going into your accounts daily and throwing some coins out your window.
Market risk makes the list because markets go up and go down. Most investors ride the ups and downs. They do so for the most part because they’re unaware that they can put a portion of their savings in vehicles that give us access to ups in the market while protecting our savings from the downs. Over time, avoiding losses can mean tens of thousands if not hundreds of thousands in additional assets saved.
DEATH OR DISABILITY
If two incomes are needed to run a house and one income earner passes away, the resulting financial instability can be catastrophic. It’s even worse if a household runs on a single income and that income earner passes away. Additionally, the leading cause of bankruptcy filings for seniors is medical care costs. While we’re busy trying to execute or build a financial plan, we need a mechanism to protect our plans so if the worst happens, our loved ones don’t lose us and the plan.
If you think there’s more to know about finances than anyone has taught you thus far, I’d be happy to connect you to some resources. I’m writing these articles because I’ve learned some things that everyone should know, but so few do. Share these insights with your loved ones!