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  • Writer's pictureDamon C Collins, MBA, AAMS®, CFEI®

How Do You Create Lasting Wealth?



For most people, steady, ongoing work is the foundation of their wealth. Career success and a good salary, or building and growing your own business, is the means to 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 high your salary, successful your business is, or big the windfall – 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 consider besides money?


Black swan events happen, markets go through extended downturns, and unexpected life or job issues can derail plans.


That's where financial planning comes in. We break down some of the things you must consider on the journey to lasting wealth.


Start by Creating 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. Once you know your goals, you can build a financial plan that balances your lifestyle now with the goals you want to achieve in the future. Working and saving until retirement at age 65 was the norm for older generations. Younger generations may have different or multiple goals and want to achieve them sooner.


  • Early retirement

  • One spouse stops working

  • Start a business

  • Buy a second home

  • Pay off all debt and be able to self-fund kids' college


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 can help you make decisions that are right for you.


For example, if retiring early is the goal, a common approach is to sacrifice lifestyle and time in the short term to reduce expenses, increase savings, and maximize work. There's even a name for this – the FIRE movement (Financial Independent Retire Early). However, there's a limit to how long you can make sacrifices and continue to feel satisfied with your life. Instead, 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, and there's no one correct answer. Being thoughtful about your goals, exploring different scenarios, and considering potential benefits from the financial planning toolkit can put you on a path to maximize your financial independence and flexibility.


Expand Your Options


Investing as early and consistently as possible is the first step to lasting wealth. Ensuring you max out tax-advantaged retirement savings and taking advantage of health savings accounts and 529 plans can put money to work and reduce your tax burden.


Expanding beyond the options available in retirement plans by putting after-tax dollars into a taxable account can help you diversify your portfolio. This allows you to refine your risk profile and potentially boost return.


Control Your Risk


Ensuring that you have lasting wealth means protecting it. A review of your insurance coverage (life, disability, etc.) that considers liability is critical. Depending on your lifestyle, you may want to explore an umbrella policy that provides additional coverage above the limits on your existing insurance policies. Life insurance policies payout is tax-free when paid to the assigned beneficiary. Not only does it protect the wealth you cumulated in the event of your passing. Life insurance can also be seen as helping secure your family's financial future in your absence.


Start Estate Planning Now.


Ensuring that your wealth can provide for your family for decades to come is something you should do proactively. A good estate plan is both thoughtful and efficient. It ensures that your wishes are carried out and preserves as much of your estate as possible for your dependents, not the tax man. For many families, a trust can simplify the transfer of assets, keep your estate private, and be customized in ways a will cannot. You also don't have to relinquish control of your assets.


Creating a will for your family is a way to protect your assets and will become effective upon your passing. With a will, you can express how you would like a specific group of beneficiaries to receive your possessions and assets in a particular way.


Another way to transfer wealth is to ensure you have designated beneficiaries on all your retirement accounts. At times, people believe this is not important. But simply naming a beneficiary on retirement accounts would result in your account balance transferring to that individual(s) upon your passing and avoiding probate.


The Bottom Line


Achieving lasting wealth requires more than just asset growth. Understanding your goals, the trade-offs in choices, and how you can incorporate financial planning tools into your situation can help you protect and grow your wealth for future generations. Remember, in most cases, wealth is built over time and not overnight.

 

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All written content on this site is for information purposes only. Diversification and any strategy discussed do not guarantee against investment losses but are intended to help manage risk and return. Opinions expressed herein are solely those of Collins Wealth Management unless otherwise specifically cited. The material presented is believed to be from reliable sources, and our firm makes no representations of another party's informational accuracy or completeness. All information or ideas provided should be discussed with an advisor, accountant, or legal counsel before implementation.


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