How Do You Create Lasting Wealth?

For most people, steady, ongoing work is the foundation of their wealth. Whether it be building and growing your own business or career success, working is the means to cultivate a lifestyle you enjoy now and the promise of a stable financial future. For others, an inheritance, a windfall from an investment or employee stock, selling a business, or even winning the lottery is the source of wealth.

But no matter how successful your business, high your salary, or big the windfall is – is it enough to create lasting wealth? How about generational wealth?

If your goal is to have enough to live the life you want and pass down wealth to provide ongoing security for your family, what do you need to think about besides money in the bank?

That’s where financial planning can help. Let’s break down some things to think about on the journey to lasting wealth.

Create Your Own Definition of Wealth

Rather than focusing on a number, try defining wealth as a lifestyle. This gets you closer to understanding what you need and when you need it.

For older generations, working and saving until retirement at age 65 was the norm. Younger generations may have different goals or may have multiple goals and want to achieve them sooner:

  • Travel often
  • Work less so you can spend more time with friends and family now
  • Early retirement
  • Start a business
  • Buy a second home
  • Self fund kids’ college

Wealth is more than money alone. Consider what financial goals you have, but also consider what life you want to live outside of work and money. When you think of your current lifestyle and of your future legacy, what do you hope to achieve? What does your life look like when it comes to community, personal growth, family, and fun? 

Once you start to understand what your goals are, you can build a financial plan that balances your lifestyle now with the goals you want to achieve in the future.

Make Informed Choices

The word that resonates most strongly with investors today is flexibility. Whatever the individual definition of wealth is, it often starts with a desire to have more control over time and work.

Understanding the trade-offs that are involved can help you make decisions that are right for you.

For example, if your goal is to retire early,  a common approach is to sacrifice lifestyle and time in the short term in favor of reducing expenses, increasing saving, and maximizing income through work. There’s even a name for this – it’s called the FIRE movement. However, there’s a limit to how long you can make sacrifices and continue to feel satisfied in the moment. If that’s you, there are several “levers” you can pull to create a better balance:

  • Extend your retirement age
  • Re-evaluate risk in your investments
  • Reduce high-interest debt and shift to lower-interest debt
  • Optimize tax efficiency

This is just one example of working towards your ideal lifestyle, and there’s no one right answer. Being thoughtful about your goals, then exploring different scenarios, and taking into account potential benefits from the financial planning toolkit can put you on a path to maximize your own financial independence and flexibility.

Expand Your Options

Another tool  to build lasting wealth is to invest as early and as consistently as possible. Ensuring that you are maxing out tax-advantaged retirement savings and taking advantage of health savings accounts and 529 plans  puts your money to work and reduces your tax burden.

You can also expand beyond investing in your available retirement plans by putting after-tax dollars into a taxable account to  help diversify your portfolio. 

Control Your Risk

Ensuring that you have lasting wealth means protecting it. It is critical to review your insurance coverage and account for potential liability. Depending on your lifestyle, you may want to explore an umbrella policy that provides additional coverage above the limits on your existing insurance policies.

Start Estate Planning Now

A good estate plan is a way to proactively ensure that you can provide for your family for decades to come. It ensures that your wishes are carried out, and it preserves as much of your estate as possible for your dependents, rather than for taxes. For many families, a trust simplifies the transfer of assets, keeps your estate private, and can be customized in ways a will cannot. 

The Bottom Line

Achieving lasting wealth requires more than just asset growth. Understanding your goals, the trade-offs in terms of choices, and how you can incorporate financial planning tools into your situation can help you protect and grow your wealth for generations to come.

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